Pandemic response helped add $24 trillion to the global debt mountain in 2020, bringing it to a new high of $281 trillion.
Credit growth in China reached $5 trillion in 2020, up over 35%yoy—faster than nominal GDP growth; Corporate defaults have risen sharply in recent years, reaching $14bn in 2020 despite relief in Q2/Q3 from forbearance; China’s general gov’t debt at 45% of GDP is well below the global average—but adding local gov’t debt brings it to 92%; China’s overseas investment and lending has slowed in recent years, dropping sharply in 2020 amid the pandemic
EM corporates have racked up $4 trillion in FX debt since 2007, bringing total FX exposure to $7 trillion; More in store: current USD weakness—with no Fed rate hike seen pre-2025—sets the stage for continued buildup in FX debt; EM corporate eurobond issuance reached $380 billion in 2020, up 10% from 2019; a record 95% of that was in USD; Most of this issuance was driven by non-financial corporates ($220bn), especially in China ($68 billion)
As the mountain of negative-yielding debt hits new record highs, EM sovereigns continue to benefit from the search for yield ; Emerging markets set to rely increasingly on USD borrowing as abundant global central bank liquidity persists; China has significantly cut back its lending to low-income countries
This Addendum references the recent extension of and modifications to the G20/Paris Club Debt Service Suspension Initiative through June 30, 2021, providing a similar extension of/modifications to the private sector Terms of Reference.
We have added new enhancements to our debt tracking framework for mature markets, improving the comparability of our debt estimates—especially during periods of large swings in GDP, as has been the case during the COVID-19 pandemic; Using this method, global debt is estimated to reach nearly $275 trillion in Q3 2020—some $2.5 trillion higher than our previous estimate
Global debt has surged by over $15 trillion since 2019, hitting a new record of over $272 trillion in Q3 2020. As the fiscal response to the pandemic continues, we expect global debt to hit $277 trillion (365% of GDP) by end-2020
In the wake of the extension of the G20 Debt Service Suspension Initiative (DSSI), as well as recent thoughtful proposals for reforming the international sovereign debt architecture, the IIF offers these private sector perspectives that build on our September 22 letter to the G20.
DSSI-eligible SSA countries have not tapped capital markets during the pandemic. However, roughly half of these countries have continued to attract net banking inflows. Large revenue losses have brought the government debt-to-revenue ratio to a staggering 480% in 2020.
COVID-19 highlights the need for structural reform in emerging market sovereign debt financing—and makes it more urgent. High, procyclical funding costs—coupled with lower trend growth—make it difficult to find fiscal space to support sustainable recovery. Failure to deal with this challenge today could result in much higher future costs for the global economy.
We remain strongly supportive of the intent behind the DSSI. However, we also recognize that the underlying premise may have changed—the issues in some countries are no longer temporary liquidity problems, but rather more fundamental solvency concerns. This letter sets out three key points which we believe are crucial.
With only 10 years to go, emerging markets and low-income countries (LICs) are far off their 2030 SDG targets; Between 2011 and 2019, median public debt in LICs rose from 30% of GDP to 47%, and is expected to reach 54% in 2020.
Pandemic-driven recessionary conditions pushed global debt-to-GDP to a new record of 331% of GDP ($258T) in Q1, up from 320% in Q4 2019. Debt in mature markets reached 392% of GDP (vs 380% in 2019). Canada, France and Norway saw the largest increases. EM debt surged to over 230% of GDP in Q1 2020 (vs 220% in 2019), largely driven by non-financial corporates in China.
Following discussions during the Paris Forum/G20 event on July 8, we are pleased to provide the following progress update on private sector engagement with respect to the G20 Debt Service Suspension Initiative (DSSI).
In response to the request for a waiver from private lenders stating that a request from sovereign borrowers for forbearance from official creditors would not constitute an event of default, we are very pleased to published this “G20 DSSI Template Waiver Letter Agreement.”
After a challenging Q1, emerging and frontier market international bond issuance picked up significantly in Q2. High yield sovereign borrowers have been accessing the market; borrowing costs are well below peak Q1 levels. We see robust issuance in most emerging and frontier markets, though sub-Saharan African borrowers are notably absent.
Daniel Shurey, Vice President of Sustainable Finance Americas at ING, joined Sonja Gibbs, MD and Head of Sustainable Finance at the IIF, on this week's ESG Webinar to provide an update on the sustainable debt market.
Informed by our working group discussions, this letter is meant to frame the accompanying Terms of Reference for private sector consideration of borrower requests within the DSSI.
The Terms of Reference are a toolkit for DSSI-eligible sovereign borrowers that request forbearance from their private creditors. This new framework offers a flexible template for in-scope borrowers and their private creditors to advance conversations and enable voluntary debt service suspension, on terms in line with official bilateral creditors.