Uncommon truths - Global debt review 2021

Global debt ratios increased by a record amount in 2020. Half was due to rising government debt and the biggest gains were in developed countries. Falling bond yields dampened the rise in debt service ratios but that may not last, in our opinion.

The man from Mars may question whether planet Earth has a debt problem (if so, to whom is it owed?). However, the global financial crisis (GFC) showed that, even if net debt is zero, it is difficult to unwind that debt when there are so many interlinkages. We therefore assume that more debt brings more risk. Hence, our annual review of global debt. Now that the Bank for International Settlements (BIS) has published its 2020 data, we are able to deliver the next instalment.

The Covid-19 pandemic caused a sharp rise in debt-to-GDP ratios: partly because debt usually rises during recession; partly because governments increased spending to protect business and household cash flows and partly because GDP declined (which mechanically increases those ratios in which GDP is the denominator).