World debt is well above pre-pandemic levels despite sharp drop in 2021

World public and private debt experienced its biggest drop in 70 years in 2021 after reaching record highs due to the effects of Covid-19, but in general it remained well above pre-pandemic levels, as reported on Monday by the International Monetary Fund.

In a blog post with its new Global Debt Monitor, the IMF said that total public and private debt fell by 10 percentage points, to 247% of global Gross Domestic Product (GDP) in 2021. from its peak of 257% in 2020. This compares with 195% of GDP in 2007, before the global financial crisis.

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

The global lender noted that private debt, which includes liabilities of non-financial corporations and households, drove the overall reduction, declining by 6 percentage points to 153% of GDP, citing data from 190 countries. The 4 percentage point decline in public debt, to 96% of GDP, was the largest in decades.

The unusually large swings in debt ratios – or “global debt roller coaster” – were due to the economic rebound after the Covid-19 crisis and rapidly rising inflation, according to the IMF.

Debt dynamics varied widely across groups of countries. Advanced economies posted the largest decline, with public and private debt shrinking to 5% of GDP in 2021, followed by similar results in emerging markets excluding China.

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

There is growing concern about the ability of low- and middle-income countries to service their debts, with an estimated 25% of emerging market countries and more than 60% of low-income countries in debt distress or close to them.