The global debt-to-GDP ratio hit an all-time high of 322% in the third quarter of last year, according to a report released Monday by the Institute of International Finance.
Global debt, which comprises borrowings from households, governments and companies, grew by $9 trillion, to nearly $253 trillion, in the first nine months of last year.
“While borrowing costs remain very low, many countries are finding a debt-driven growth model increasingly difficult to maintain,” said Sonja Gibbs, managing director of global policy initiatives at the institute. “High and rising debt-to-GDP ratios are making debt service and refinancing more challenging, and the 2020s are likely to see a greater incidence of debt distress and restructuring.”
China’s ratio of debt to GDP, for example, is approaching 310%, the highest level in the developing world. Investors have long kept a skeptical eye on the highly-leveraged country. Following a push for Chinese companies to deliver in 2017 and 2018, debt levels rose again last year, the IIF said in its Global Debt Monitor report.
Such massive worldwide debt is a real risk for the global economy, especially because the IIF expects levels to rise even further in 2020.
Despite favorable borrowing conditions, the refinancing risk is massive. A total of more than $19 trillion of syndicated loans and bonds will mature in 2020. It’s unlikely that all of these will be refinanced or repaid.
Another issue that the report brings up is the financing needs for urgent climate change action.
The United Nations’ Sustainable Development Goals require $42 trillion of infrastructure investments by 2030, but “countries with limited borrowing capacity could face severe challenges in meeting development finance needs,” the IIF said.