China and the US lead the rise in global debt to a record $305 trillion

The world’s two largest economies borrowed the most in the first quarter, when global debt rose to a record over $305 trillion while the debt-to-GDP ratio fell, data from the US showed on Wednesday. Institute of International Finance (IIF).

the debt of China increased by 2.5 billion dollars during the first trimester and The United States added 1.5 billion dollarsaccording to the data, while total debt in the euro zone fell for the third consecutive quarter.

The analysis showed that many countries, both emerging and developed, are entering a monetary tightening cycle – led by the Federal Reserve – with high levels of dollar-denominated debt.

“As central banks move forward with tightening monetary policies to curb inflationary pressures, higher borrowing costs will exacerbate debt vulnerabilities,” the IIF report said.

“The impact could be more severe for those emerging market borrowers who have a less diversified investor base.”

Sovereigns beware

Corporate debt outside banks and government loans were the main sources of the credit surge, with debt outside the financial sector topping $236 trillion, some $40 trillion more than two years ago when the crisis hit. Covid-19 pandemic.

Government debt has risen more slowly over the same period, but as borrowing costs rise, sovereign balance sheets remain under pressure.

“With government financing needs still well above pre-pandemic levels, higher and more volatile commodity prices could force some countries to further increase public spending to stave off social unrest,” the government said. IIF. “This could be particularly difficult for emerging markets that have less fiscal space.”

The lack of transparency has also become a burden for emerging markets, where total debt is approaching $100 trillion from $89 trillion a year ago.

“The lack of timely disclosure of public debt obligations, the very limited coverage of contingent liabilities (including the liabilities of state-owned companies) and the widespread use of confidentiality clauses are the main impediments that cause information asymmetries between creditors and debtors,” the IIF report said.

The global debt-to-GDP ratio fell to 348%, some 15 percentage points below the record set a year ago, with major improvements seen in European Union countries.

“Growth is expected to slow significantly this year, with adverse implications for debt dynamics,” the report said.

“In the wake of strict lockdowns in China and tighter global financing conditions, the anticipated slowdown will likely limit or even reverse the downward trend in debt ratios.”

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