Editor's note: Wang Jianhui is the deputy general manager of the research and development department at Capital Securities. The article reflects the author's opinions and not necessarily the views of CGTN.

Debt is like sugar, which is welcomed almost everywhere. Too much debt, as everyone knows, probably causes bad consequences, as excessive sugar intake could affect our health. As the 2020 Institute of International Finance G20 Conference kicks off on February 22 in Riyadh, Saudi Arabia, the world is about to face an all-time high global debt of 257 trillion U.S. dollars in the coming month. Should we be worried about it given the rampaging coronavirus is making the situation more complicated?

Based on some common sense and past experiences, we may conclude that an imminent credit related crisis is not yet in sight. It's understandable that the debt level almost always grow along with the overall economy. It's not the scale but the timing of debt that matters.

Whenever the interest rate is low or trending down and borrowings are used effectively to generate incremental growth, the debt-for-growth model is sustainable; otherwise things can go extremely wrong like the case in 2008.

From 2003 to 2007, the global economic growth surged from three percent to overheated 5.67 percent (World Bank); most economies experienced increasing inflation ranging between 4.5 percent in high-income countries and 11 percent in middle-income countries. To counter the inflation and cool down the economy, Chinese and Indian central bank lifted the benchmark interest rate for 8 and 10 times. The Federal Reserve was the first among the major ones to raise its key rate (starting in June 2003); after a 17-time hike of the federal fund rate from one percent to 5.25 percent, the economy slowed down from 4.33 percent to 1.97 percent, while the inflation edged up from 3.4 percent in 2005 to 3.8 percent in 2008.

Households and companies in debts were caught in the middle of increased interest expenditure, higher living costs and reduced income due to the slower business. At a certain point, debt defaults of large scale entities were inevitable. Since other economies were facing more or less similar difficulties, the crisis quickly became contagious.

In terms of leverage (measured by the ratio of debts from private sector and bank loans to the gross domestic products), the current situation looks tricky. The global median leverage ratio in the previous three years before 2008 was 239.6 percent, and the one during the last three years was 262.3 percent (Bank of International Settlement data). Nevertheless, no one panicked because there's a key difference that lies in the economic and policy environment.

From 2013 to 2018, the growth of world economy has been stabilizing around 3.5 percent with no signs of drastic changes in sight. Both monetary and fiscal policies in major economies are clearly accommodating, with the leading interest rates at or close to historical low since 2009 and extensive tax cuts.

Despite the huge money supply, the inflation in most major economies remain relatively tame between one and 2.5 percent in advanced economies, and four to six percent in emerging market. In addition, comparing to the life over a decade ago, households and corporations, generally speaking, are finding themselves in a comfort zone with more stable revenues and flat or declining costs.

Although we don't have to worry too much, there're two concerns that need to be cautiously and immediately addressed. First is the new imbalance of the debt structure in the major countries. The leverage of some governments has been increasing constantly, while that of non-financial companies in other countries remains alleviated since the financial crisis. In the United States, for instance, the leverage of the households has lowered from 98.6 percent to 74.9 percent, but that of the government has climbed from 58.8 percent in 2008 to 97.7 percent in the first quarter 2019.

In Euro Zone governmental leverage increased from 66.7 percent to 86.5 percent, while that in corporate area also picked up from 92.9 percent to 107.4 percent (compared to 74.9 percent in the United States). Assuming more responsibilities by the governments would be necessary during emergencies but should not become a new normal.

Second is the recent outbreak of COVID-19 in China which might cause some serious uncertainties which could push up the corporate and governmental funding cost in the short run. Roughly estimating, this epidemic could cost us 460-470 billion yuan in the first quarter; especially the service related businesses have been badly hit due to the shutting down of the markets.

To provide reliefs to the companies by postponing or reducing tax payment or granting special subsidies, cover the medical expenses for the infected patients and quickly build up hospitals, the central government may have to bump up the deficit ratio from 2.8 percent to 3-3.3 percent.

This year's fiscal expenditure could increase by double digits and further push up the government leverage. Internationally, the epidemic also causes negative impacts. Outbound tourism, for instance, could go down by 60 to 80 percent in the first quarter; that means 39 to 53 billion U.S. dollars revenue disappear for foreign airlines, shopping malls and restaurants.

(If you want to contribute and have specific expertise, please contact us at opinions@cgtn.com.)