Pandemic pushes global government debt over 105% of GDP

19 Feb 21

Covid-19 led public debt to a record high in 2020, as governments borrowed three times as much as they did the previous year while trying to fight the virus.

New figures from the Institute of International Finance show public debt rose by more than $12trn, reaching $82.3trn, when it rose by just $4.3trn in 2019.

This was largely concentrated in advanced economies, where $10.7trn was borrowed, due to the fiscal response to the crisis being relatively constrained in the developing world.

Such large borrowing figures, combined with the global economic contraction, has left debt-to-GDP ratios much higher.

Globally, debt reached 105.4% of GDP, compared with 88.3% in 2019.

This trend is likely to continue into the recovery, the IIF said.

“While some pandemic-related fiscal measures will likely expire in 2021, budget deficits are set to remain well above pre-pandemic levels,” the institute said in its Global Debt Monitor paper.

“We expect global government debt to increase by another $10trn this year and surpass $92trn by end-2021.”

Covid-19’s effect on debt has been greater even than the 2008 financial crisis, the report found, and the IIF warned governments might not be able to embark on such aggressive deficit reduction campaigns as they did in the decade that followed the last crash.

“Political and social pressure could limit governments’ efforts to reduce deficits and debt, jeopardising their ability to cope with future crises,” the report claimed.

“This could also constrain policy responses to mitigate the adverse impacts of climate change and natural capital loss.”

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