The amount of debt held in the world rose by the largest
margin in two years during the first quarter of 2018, growing by $8 trillion
during the first three months of the year, the Institute of International
Finance reported Tuesday.
Global debt has now risen to more than $247 trillion, which
is 318% of the world’s gross domestic product. Additionally, IIF found that
global debt has risen by $30 trillion since just the fourth quarter of 2016.
“The pace is indeed a cause for concern,”
IIF’s Executive Managing Director Hung Tran told Yahoo Finance during
a call with reporters. “The problem with the pace and speed is if you borrow or
if you lend very quickly … the quality of the credit tends to suffer.”
That means more governments, businesses and individuals
have been borrowing that could have trouble paying the money back.
“The quality of creditworthiness has declined sharply,”
IIF also noted that global debt-to-GDP increased for the
first time in more than a year with financial sector debt reaching an
all-time high of around $61 trillion. Though the financial sector debt has been
rising more slowly.
With global growth losing some momentum and becoming more
divergent, and U.S. rates rising, the organization said that worries about
credit risk are returning to the forefront, including in many developed
economies, such as the United States and Western Europe.
While IIF analysts say the debt itself is not necessarily a
concern because it can be rolled over and refinanced provided growth continues
in issuing countries, they did stress that developments in the United States
were worrisome for the global growth picture. In addition to increasing debt at
a faster pace the country is also raising interest rates, causing the cost of
borrowing to rise.
Sonja Gibbs, IIF’s senior director of the global capital
markets department, noted that there was an increased risk of sovereign debt
crises in a select few developed markets as a result of the increase of debt
and financing costs.
“Government debt is higher than it was prior to the crisis
and corporate debt as well,” Gibbs said. “This may be slightly overlooked.”
Gibbs added that the United States’ debt growth was
particularly worrisome, given that it has now grown to more than 100% of GDP.
With the increases in spending from President Donald Trump and Congress, the
U.S. will now have funding needs of 25% of its GDP.
“The U.S. really stands out here because … a lot of that is
the expanding budget deficit as well as maturing debt,” Gibbs said. “That’s a
lot of financing need affecting the market.”
here for the original article from Yahoo Finance.