Global Debt Shrinks by $4 Trillion in 2022
In summary, global debt declined in 2022, largely driven by mature markets, while emerging markets continued to see a rise in debt - IIF
The global debt pile shrank by $4 trillion to $299 trillion in 2022, marking the first annual decline since 2015. The drop was driven entirely by mature markets, while debt in emerging markets continued its upward trend, hitting a record high of $98 trillion.
Government debt in emerging markets rose further, nearing 65% of GDP in 2022. While EM sovereign Eurobonds have benefited from recent risk-on sentiment, the external public debt burden of many developing countries has worsened due to sharp losses in local currencies against the USD, says the Institute of Intenational Finance.
The global debt-to-GDP ratio declined over 12 percentage points to 338% of GDP in 2022—the second annual drop in a row. Mature markets recorded the largest falls with total debt ratio declining by over 20% points to 390% of GDP.
The pace of debt accumulation in the non-financial corporate sector decelerated significantly last year, with the strength of the U.S. economy prompting a surge in borrowing among U.S. corporates.
A close look at quarterly debt figures suggests that Q4 2022 might have marked an inflection point, with the global debt pile increasing by over $10 trillion. The massive rise in global debt levels over the past decade has been accompanied by the rapid expansion of "shadow banking" worldwide, and growing attention to potential associated risks.
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However, the growing role of these non-bank financial institutions has allowed many borrowers to have better international market access and diversify their creditor base.
While 2022 saw NBFIs do less credit intermediation amidst large outflows from investment funds, they are expected to play a key role in mobilizing private capital for climate action, which should in turn help to break the links between debt accumulation and carbon emissions.
In summary, global debt declined in 2022, largely driven by mature markets, while emerging markets continued to see a rise in debt. The global debt-to-GDP ratio also declined for the second year in a row.
However, the fourth quarter of 2022 saw an increase in the global debt pile, which may suggest a new wave of debt. The role of non-bank financial institutions in credit intermediation has grown, allowing borrowers to have better international market access and diversify their creditor base, with expectations for them to mobilize private capital for climate action.
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