USA: The Institute of International Finance (IIF) has reported that the global debt load increased by $8.3 trillion in the first quarter of the year to a nearly record high of $305 trillion amid an aggressive tightening of monetary policy by central banks.
The reading is the highest since the first quarter of last year and the second-highest quarterly reading ever, according to its Global Debt Monitor report released on Wednesday.
The IIF cautioned that concerns about leverage in the financial system had arisen as a result of the high levels of debt and rising interest rates, which had increased the cost of servicing that debt.
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According to the IIF, "financial conditions are at their most stringent levels since the 2008–2009 financial crisis, a credit crunch would result in higher default rates and more 'zombie firms,' which are already estimated to account for 14% of US-listed firms."
Government borrowing must remain high despite worries about a potential credit crunch following recent turmoil in the banking sectors of the United States and Switzerland, the finance industry body stressed.
Ageing populations and rising healthcare costs are still exerting pressure on government balance sheets, the report claims, and "heightened geopolitical tensions are also expected to drive further increases in national defence spending over the medium term," which could have an impact on the credit profiles of both governments and corporate borrowers.
The IIF issued a warning, stating that "if this trend persists, it will have significant implications for the international debt markets, particularly if interest rates remain higher for longer."
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According to the report, total debt in emerging markets increased from $75 trillion in 2019 to a new record high of over $100 trillion, or about 250% of GDP. According to the IIF, China, Mexico, Brazil, India, and Turkey were the countries that contributed most to growth.
According to the report, the developed markets with the biggest gains during the quarter were Japan, the US, France, and the UK.