Emerging market borrowing spree lifts global debt to record $217 trillion -IIF

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Global debt levels have surged to a record 217 trillion US dollars, driven by a three trillion US dollars borrowing spree in the developing world, the Institute of International Finance (IIF) said, warning of risks to emerging markets from short-term debt repayments.

The IIF, one of the most authoritative trackers of capital flows, said in a note late on Tuesday that global debt amounted to 327 percent of the world's annual economic output (GDP) by the first quarter of 2017 and the rise was driven principally by emerging market borrowing.

While advanced economies continued to deleverage, cutting total public and private debt by over two trillion US dollars in the past year, the report found total debt in developing countries had risen by three trillion US dollars to 56 trillion US dollars.

This amounted to 218 percent of their combined GDP, five percentage points above the first 2016 quarter.

China accounted for two trillion US dollars of this rise, with its debt now at almost 33 trillion US dollars, led by households but also company borrowing the IIF said.

"Rising debt may create headwinds for long-term growth and eventually pose risks for financial stability," the report said.

Chinese housing market/VCG photo

"In some cases, this sharp debt build-up has already started to become a drag on sovereign credit profiles, including in countries such as China and Canada."

High debt levels may soon come into greater focus if central banks from the US Federal Reserve to the European Central Bank (ECB) start unwinding some of the stimulus they have pumped into world markets. US interest rates are already on the rise, potentially boosting the dollar and global borrowing costs.

Recent ECB comments have also fueled expectations it will announce a reduction in stimulus as soon as September. The Bank of International Settlements (BIS) this week urged policymakers to press on with rate rises notwithstanding financial market turbulence.

Higher global borrowing costs could weigh most heavily on those who took out dollar debt and will need to repay it or roll over in coming years.

The IIF report found that emerging markets had over 1.9 trillion US dollars of emerging bonds and loans falling due by end-2018, and 15 percent of this was denominated in dollars. The biggest redemptions were in China, Russia, South Korea and Turkey, it said.

Emerging hard currency-denominated debt rose by 200 billion US dollars in the past year - growing at its fastest pace since 2014 - and 70 percent of this has been in dollars, the report found.

"Rollover risk is high," the IIF added.

(Source: Reuters)