IMF warns against $152T global debt

By Ovunc Kutlu

NEW YORK

Global debt in the nonfinancial sector reached $152 trillion in 2015, posing a risk to the recovery in the global economy, the International Monetary Fund (IMF) said Tuesday in its semi-annual Fiscal Monitor report.

Total debt, which comprises those of governments, households and nonfinancial firms, is currently at an all-time high of 225 percent of the world’s GDP, according to the October report entitled: Debt: Use it Wisely.

It said two-thirds of this total debt, or about $100 trillion, consists of liabilities of the private sector that can pose great risks if they reach excessive levels. The remaining one-third is public debt, which rose to 85 percent of the world’s GDP.

"Private debt ... is concentrated in many advanced economies, and a few systemically important emerging market economies, IMF Fiscal Chief Vitor Gaspar said in an interview on the Fund's website.

The bank said not all countries have the same debt levels, nor do they face the same risks.

"Debt levels are usually low in low income countries," Gaspar said, adding that "global debt is at record highs. It constitutes one of the most important headwinds against growth in the global economy."

In advanced economies there has been a 50 percent increase in public debt since the beginning of the global financial crisis in 2008, according to the report.

New evidence shows that financial crises are in relation to excessive private debt levels in advanced and emerging market economies, the IMF noted, and added that high debt is also associated with lower growth.

In addition, easier financial conditions such as low interest rates, have also led to an increase in nonfinancial corporate sector debt in some emerging markets.

As part of the solution, the Fund advised that new financial policies should be adopted to provide incentives for banks to repair their balance sheets.

"Monetary policy should remain accommodative in those countries where inflation is still well below target," the IMF added.