In a recent revelation, the International Monetary Fund (IMF) has stated that global debt witnessed a notable decline in 2022, reducing by 10 percentage points relative to the world’s GDP. This marks the second consecutive year of decline, bringing the total global debt down to $235 trillion. However, despite this decrease, the global debt remains 9 percentage points higher than its 2019 levels and exceeds the 2021 figures by $200 billion.
As per the IMF’s assessment, the total global debt in 2022 accounted for 238 percent of the world’s GDP. While this figure represents a decrease from the 248 percent recorded in 2021, it still surpasses the 229 percent reported in 2019.
Explaining the recent reduction in global debt, the IMF attributed this trend to the rebound in economic activity following the initial pandemic-induced contraction and significant inflation surprises.
Global debt had previously spiked to 258 percent of the world GDP in 2020.
The decrease in global debt observed in 2022 was primarily driven by the private sector, which saw a 6.4 percentage point reduction, bringing it to 146 percent of the GDP. Remarkably, many countries, particularly in advanced economies and emerging markets (excluding China), have now seen their private debt fall below pre-pandemic levels.
On the other hand, public debt experienced a more modest decrease of 3.6 percentage points in 2022, reaching 92 percent of the GDP. In 2021, public debt had recorded a more substantial decline.
Despite these recent improvements, the IMF expressed concerns about the likelihood of global debt resurging over the medium term, particularly in a business-as-usual scenario. It pointed out that the macroeconomic conditions that contributed to the reduction in debt ratios during 2021-2022 are not expected to persist. The rebound in real GDP growth is reportedly fading.
The IMF’s cautionary remarks come at a time when there are growing calls to address debt distress in economically vulnerable middle-income countries, a topic that featured prominently during India’s G20 Presidency.
The IMF emphasized the importance of low-income developing nations enhancing their tax revenue collection capabilities. Additionally, for countries burdened with unsustainable debt, the IMF advocated for a comprehensive approach, combining fiscal discipline and debt restructuring through mechanisms like the Group of Twenty Common Framework, a multilateral instrument designed for sovereign debt forgiveness and restructuring.
