World Bank study says debt in emerging, developing economies hit $55trn

A new World Bank Group study has disclosed that debt obligation in emerging and developing economies (EMDEs) climbed to a record US$55 trillion in 2018, marking an eight-year surge, which witnessed the largest, fastest, and most broad-based in nearly five decades.

The body urges policymakers to act promptly to strengthen their economic policies and make them less vulnerable to financial shocks.

The analysis is contained in Global Waves of Debt, a comprehensive study of the four major episodes of debt accumulation that have occurred in more than 100 countries since 1970.

It found that the debt-to-GDP ratio of developing countries has climbed 54 percentage points to 168 percent since the debt build up began in 2010.

On average, it said that ratio has risen by about seven percentage points a year—nearly three times as fast it did during the Latin America debt crisis of the 1970s.

The increase, moreover, has been exceptionally broad-based involving government as well as private debt, and observable in virtually all regions across the world, said the Bank.

World Bank Group President David Malpass said “The size, speed, and breadth of the latest debt wave should concern us all.

“It underscores why debt management and transparency need to be top priorities for policymakers so they can increase growth and investment and ensure that the debt they take on contributes to better development outcomes for the people.”

According to the report, “the prevalence of historically low global interest rates mitigates the risk of a crisis for now. But the record of the past 50 years highlights the dangers: Since 1970, about half of the 521 national episodes of rapid debt growth in developing countries have been accompanied by financial crises that significantly weakened per-capita income and investment.”