The economic rebound and rise in inflation have pushed India’s private and public debt down by more than 10 percentage points of its gross domestic product (GDP) in 2021, according to a new research report by the International Monetary Fund. Apart from India, other countries such as Brazil, Canada, and the United States have also witnessed a fall in their debt levels by 10 percentage points of their GDP.
Titled ‘Riding the global debt rollercoaster', the report said that the actual debt of these countries fell less owing to the financing needs of the government and the private sector. In other countries, such as China and Germany, the public debt increased as the large deficits more than compensated for the rise in nominal GDP.
According to the report, total global public and private debt declined 10 percentage points of GDP in 2021, to 247% of GDP ($235 trillion). This follows the largest one-year increase in global debt in 2020, when it rose by 29 percentage points of GDP. The world’s public debt fell from 100% of GDP in 2020 to 96% of GDP in 2021, supported by strong real GDP growth, high inflation, and the withdrawal of COVID-19 fiscal support measures. This is the largest such drop in decades.
The global private debt, which includes non-financial corporate and household obligations, drove the overall reduction, decreasing by 6 percentage points to 153% of GDP. Of this, the global non-financial private debt dropped from 160% of GDP in 2020 to 153% of GDP in 2021, driven by lower corporate debt.
“The unusually large swings in debt ratios are caused by the economic rebound from COVID-19 and the swift rise in inflation that has followed. Nevertheless, global debt remained nearly 19 percent of GDP above pre-pandemic levels at the end of 2021, posing challenges for policymakers all over the world,” IMF said in a statement.
In terms of regions, the advanced economies witnessed the largest decline in debt. As per the report, total debt in advanced economies declined on average by 10 percentage points of GDP, to 292% of GDP in 2021, led by falls in public and private debt. The fall in private debt was led by a drop of 4 percentage points of GDP in non-financial corporate debt. Household debt fell by 2 percentage points of GDP in advanced economies.
In emerging markets, the fall in debt was driven by private debt heavily influenced by China. Total debt-to-GDP fell, on average by 7 percentage points to 192% of GDP in 2021 in emerging economies, owing to a reduction in private debt to 130% of GDP. The public debt amongst emerging economies remained broadly stable around 64% of GDP.
In emerging markets excluding China, public and private debt fell 4 and 6 percentage points of GDP, respectively to 130% of GDP in 2021.
“The decline in the world’s debt-to-GDP ratios was chiefly driven by a sharp rise in nominal GDP in the largest economies. While fiscal deficits declined in 2021, as many countries withdrew fiscal support to firms and households and collected more revenues, they remained relatively large and continued pushing public debt up in all country groups,” the IMF said.