WASHINGTON – In the year since the COVID-19 pandemic that plunged the world economy, the level of global debt – money owed by governments, businesses and households – has jumped 12% to $ 289 trillion. And while some countries seem to have started the task of reducing aggregate debt, many governments in countries in transition to a fully-fledged market economy are struggling to do so.

According to data collected by the Institute of International Finance, most of the $ 30 trillion in borrowing since the end of 2019 has been carried out by sovereign governments, which have taken on $ 13.4 trillion in additional debt. during this period.

As many advanced economies regain their equilibrium, with rising vaccination rates and declining infection rates, progress against the pandemic in countries that are not yet fully integrated into the global economy – called “markets” emerging ”- are very variable. This means that in some countries that have borrowed heavily over the past year, interest payments on debt have increased, even as tax and other revenues have been reduced by declining economic output.

FILE – A man carries chickens for sale at a market in Accra, Ghana on May 13, 2021 during the Eid Al-Fitr prayer which marks the end of the holy month of Ramadan.

Of the 31 emerging countries tracked by IIR data, public debt rose 15% between the end of 2019 and the end of the first quarter of this year. Outliers include the Czech Republic and Ghana, which saw their sovereign debt grow by more than 35% during this period, as well as the Philippines, China, Indonesia and Israel, which all saw an increase of more than 25%.

Debt repayments increase

This leaves experts worried not only about how countries will pay off their newly accumulated debts, but also whether they will have the financial capacity to respond to new economic shocks in the future.

The more debt a country accumulates, the less confident lenders are in its ability to successfully take out additional loans – resulting in higher interest rates and ultimately an inability to access liquidity in global financial markets. It can handcuff a government trying to respond to an emergency, whether it is a pandemic, natural disaster or armed conflict.

According to Emre Tiftik, director of sustainability research at the IFF, the surge in debt for emerging market economies came at the end of more than a decade in which their borrowing was already on the rise.

Winners and losers

The increase in borrowing “can be good or bad,” Tiftik said. “If the product is used productively well, it can help stimulate economic activity and spur potential growth, above all, and create new jobs. But unfortunately, when you look across the spectrum, there are winners and there are losers. Many of them have used this rapid pace of debt accumulation for short-term gains, to stimulate short-term economic activity at the cost of delaying [addressing] problems at another time.

Then came the pandemic. Tiftik said that with debt levels already very high, some emerging market countries were unable to borrow on good terms and got into more debt or were forced to scale back efforts to protect their citizens from the worst impact. of the pandemic.

Tiftik said his main concern is that many of these countries have already significantly stretched their borrowing capacity and are far from seeing an end to the pandemic, which means their economic output will recover more slowly than expected. expect in mature markets.

“Today, they are much more vulnerable to unexpected shocks,” he said.

Mature markets borrowed more

Governments in mature markets such as the US, UK, France and Germany have borrowed even more than those in emerging markets during the pandemic and in general have a higher debt-to-gross domestic product ratio. Student. But they also have a much greater capacity to service debt and, in the case of countries like the United States, borrow in a currency that they themselves control.

FILE – An activist member of Extinction Rebellion (XR) brandishes a smoke torch as he stood on the balcony of the Banque de France during a demonstration to denounce investments in fossil fuels, in Paris, on the 1st April 2021.

Some countries in the mature markets category significantly increased their debt levels during the pandemic. Estonia, for example, increased its debt by 92% during the pandemic, but from a very low baseline of just $ 3 billion. The other countries with particularly large increases are New Zealand at 81%, Slovakia at 59% and Australia at 56%.

Eurozone countries have increased their sovereign debt by 20% on average, but with very different margins. Denmark, for example, only increased its bonds by 12%, while Luxembourg’s debt increased by 41%.

The United States still borrows

While the majority of the 28 mature market economies tracked by the IIR began taking action to reduce debt levels in the first quarter of 2021, the United States was not among them, adding $ 372 billion additional borrowing to a national debt exceeding $ 27 trillion.

For fiscal hawks, who have understood the need for additional borrowing in response to the pandemic, the continued rise in national debt – even as the country appears to be recovering well – is a real concern.

“I don’t know of any other country that has made the kind of borrowing we have in 2021,” said Marc Goldwein, senior vice president and senior policy director of the Committee for a Responsible Federal Budget.

FILE – This file photo from May 4, 2021 shows the Treasury building in Washington.

It was one thing, he said, when the United States was part of a concerted global effort to avert economic catastrophe by issuing new sovereign debt. But now that many advanced economies are reducing their debt rather than issuing more, the dynamics have changed.

“We are going to come out of this crisis with a lot of global debt, and also a lot of global savings. But it looks like in the United States our new debt will eventually overtake our new economies as we row in a different direction than the rest of the world.