News

Emerging Markets: Debt More Than Doubles in Past Decade

A May 24 CNBC article discusses skyrocketing debt in emerging markets and mentions the nations with the most "elevated debt burdens":

Swelling debt levels may cause emerging markets to fall further behind developed markets in the economic recovery from the Covid-19 pandemic, an economist said [May 24].

"With the pandemic, debt rose across all types ... the big increase of course was in government debt -- and no surprise because of such a need to provide fiscal stimulus at the same time the tax revenues were down much across the board around the world," Steve Cochrane, chief Asia-Pacific economist at Moody's Analytics, told CNBC's "Squawk Box Asia."

"The real impact, however, I think is sort of an increasing divide between developed economies and emerging markets. The debt loads rose most in emerging markets and they may have the most difficulty in terms of taking care of this debt going forward," he added. 

Total global debt across government, corporate, household and financial sectors rose by a record $24 trillion in 2020, an analysis by Moody's Analytics showed. The increase took global debt to a new-high of 366% of gross domestic product, the consultancy said in a report.

Overall debt in emerging markets more than doubled over the past decade and now accounts for one-third of outstanding debt globally, according to the report.

Emerging markets including Turkey, Vietnam and Brazil were singled out in the Moody's Analytics report for having elevated debt burdens in more than one sector.

Many advanced economies are also grappling with debt. Elliott Wave International's Global Market Perspective provided analysis in November 2020 with this chart and commentary:

PeakinWorldsDebt

Whether or not countries can service their debt will be the defining economic question of the coming decade. And amidst widespread deflation, nearly every developed and developing country on the planet will have to answer it. For now, mood remains positive, so the world remains awash in IOUs and governments still retain the ability to add more. According to the IMF, government debt ratios will soar by 20% of GDP before the year is over. Across the world, advanced economies have seen their collective debt-to-GDP ratios push past levels last seen at the end of World War II. The situation is building to an epic finale that Conquer the Crash initially described back in 2002. This excerpt, for instance, explains the "structural aspect of deflation and depression":

"The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain--in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans--that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit." -- Conquer the Crash, 2020