December 13: Global public and private debt saw its biggest drop in 70 years in 2021 after reaching record highs because of the impacts of COVID-19, Reuters reported citing the International Monetary Fund (IMF). According to the news agency, the overall debt, however, remained well above pre-pandemic levels.

In a blog released with its inaugural Global Debt Monitor, the IMF said total public and private debt decreased by 10 percentage points to 247 percent of global gross domestic product (GDP) in 2021 from its peak of 257 percent in 2020. That compares to around 195 percent of GDP in 2007, before the global financial crisis, added Reuters.

In dollar terms, global debt continued to rise, although at a much slower rate, reaching a record $235 trillion last year.

“Debt ratios are expected to drop further in most countries in 2022 given nominal GDP growth, but 2023 would usher in a much flatter profile given forecast economic declines in many economies and the rising costs of servicing debt,” Reuters quoted IMF fiscal affairs director Vitor Gaspar as saying.

The global lender said private debt, which includes non-financial corporate and household obligations, drove the overall reduction, decreasing by 6 percentage points to 153 percent of GDP in 2021, citing data for 190 countries.

The drop of 4 percentage points for public debt, to 96 percent of GDP, was the largest such drop in decades, it said.

The unusually large swings in debt ratios - or "global debt rollercoaster" - were caused by the economic rebound from COVID-19 and the ensuring swift rise in inflation, the IMF said.

Debt dynamics varied widely across country groups. Advanced economies saw the biggest drop in debt, with both public and private debt dropping 5 percent of GDP last year, followed by similar results in emerging markets, excluding China.

But low-income countries saw their total debt ratios continue to increase in 2021, driven by higher private debt, with total debt reaching 88 percent of GDP.

There are growing concerns about the ability of low- and middle-income countries to repay their debts, with an estimated 25 percent of emerging market countries and over 60 percent of low-income countries either in or near debt distress.

High inflation levels continued to help reduce debt ratios in 2022, but fiscal spending would likely increase if inflation becomes persistent, which could lead to higher premiums, IMF officials said.

They suggested that the governments should pursue fiscal policies that help reduced inflationary pressures now and debt vulnerabilities over the long term, while continuing to support the most vulnerable.