ANDIn international financial markets, interest rates rose at a record pace since the beginning of the year due to inflationary pressures. Some fund managers are now talking about a “bond crash”. In the global economy, interest rates have to be higher and higher, and this is with record debt levels. As reported now by the World Banking Association of the Institute of International Finance (IIF), debt of all states, banks, businesses and households rose by $ 3.3 trillion to $ 305 trillion in the first quarter.
The United States and China in particular contributed to this. According to IIF data, American liabilities increased by $ 1.8 trillion, and China’s by $ 2.5 trillion. The euro area is a positive exception, where debt fell for the third consecutive quarter. The decline in liabilities measured against global economic output (gross domestic product, GDP) is satisfactory. The debt ratio at the end of March was 348 percent. GDP was 15 percentage points lower than in the same period last year, according to the IIF. The reason for this was higher growth in the world economy.
In recent years, the crown pandemic has forced governments to support the economy with large amounts. This, in turn, increased the debt. In the first quarter, the IIF once again listed government lending as the main driver of growth. However, companies also used favorable interest rates during the koruna pandemic to buy off the debt. Their liabilities have increased by $ 14 trillion from 2019.
The crown debt pandemic
According to IIF statistics, non-bank liabilities have risen by $ 40 billion to $ 236 trillion since the beginning of the koruna wave. Of this, USD 88.3 trillion is for states, USD 90.6 trillion for enterprises and USD 57.0 trillion for households. Bank debt was $ 69.4 trillion at the end of March.
While the IIF debt statistics are a good indicator of world debt, they overstate the real burden as they take into account bank debt. On the other hand, they grant loans to states, businesses and households or hold bonds. Therefore, double counting can inflate your debt statistics. Like the Bank for International Settlements (BIS), which is considered a central bank, the IIF calculates debt at market value, but not at face value. But debtors have to pay off face value.
After the sell-off in the bond markets, their prices fell significantly, pushing up their yields. The ten-year federal bond is currently selling for only about 90 percent of its face value. But in the end, the federal government has to pay off 100 percent.
Low transparency in emerging markets
Debt growth is very strong in emerging markets, where economies deprived of raw materials are particularly under pressure from the war in Ukraine and rising energy and food prices. At $ 98.7 trillion, emerging market debt is not far from the $ 100 trillion mark. IIF warns of hidden debt in emerging markets. There, public sector liabilities are reported late, contingent liabilities are reported only to a very limited extent, and confidentiality clauses are applied very generously.
Soaring interest rates are a major concern for the association as government debt increased by $ 17.4 trillion during the pandemic. Emerging markets, in particular, with little room for maneuver, can face challenges if social tensions arise in the face of rising energy and food prices.