The total debt in emerging markets and developing economies (EMDE) hit a record $55 trillion or Rs 3,911 lakh crore in 2018, according to a World Bank Group study released on Thursday, which has termed the eight-year surge as the largest, fastest, and most broad-based instance of debt accumulation in 50 years.
The study titled, Global Waves of Debt, has found that the debt-to-GDP ratio of developing economies has climbed 54 percentage points since 2010, or on average, 7 percentage points per year, to reach 168%.
“The size, speed, and breadth of the latest debt wave should concern us all. It underscores why debt management and transparency need to be top priorities for policymakers—so they can increase growth and investment and ensure that the debt they take on contributes to better development outcomes for the people,” said World Bank Group President David Malpass.
It also notes that measures taken by India during the 2008 crisis like selling foreign currency in the spot market,providing guarantees on foreign currency deposits and and changing regulations to facilitate foreign borrowing helped mitigating its impact. The report also mentions that policies like the Insolvency and Bankruptcy Code (IBC) are a step in the right direction.
However, the report calls for more work to be done towards shoring up developing economies from shocks.“History shows that large debt surges often coincide with financial crises in developing countries, at great cost to the population. Policymakers should act promptly to enhance debt sustainability and reduce exposure to economic shocks,” said Ceyla Pazarbasioglu, the World Bank Group’s Vice President for Equitable Growth, Finance, and Institutions.
The analysis highlights that the latest wave of debt accumulation is different from previous instances that have led to global crises in that it involves a simultaneous buildup in both public and private debt compared to an either or situation in the past. Debt accumulation in the public and private sectors each have their own set of consequences, however, this situation sets a new precedent for policy makers to tackle.
An important point to note is that China’s debt-to-GDP ratio, having risen 72 percentage points since 2010 to 255%, increases the average. However, even after excluding China, debt levels in EMDEs are still twice the nominal levels seen in 2007.
The report warned that the current low global interest rates provide only a precarious protection from financial crises and robust and transparent debt resolution policy and processes can ensure more resilient economies.
Source: Economic Times