According to the Institute of International Finance (IIF), the world’s already massively increasing mountain of debt shows no sign of slowing in the foreseeable future. In the first 9 months of 2019 alone, total debt across government, non-financial and financial corporate sectors plus households grew by USD9tn, leaving the global debt-to-GDP ratio at 322%, surpassing that of 2016 as the highest on record. Of these figures, more than half has been accumulated in developed markets, bringing their debt-to-GDP ratio to an eye-watering 383%. The IIF believes global debt will climb in the coming months to USD257tn.
To put these figures into context, nearly USD260tn (what’s USD3tn between friends?) works out at about USD32,500 for each of the 7.7 billion people that live on our planet. The managing director of global policy initiatives at the institute, Sonja Gibbs, gave a stark warning that the current path is unsustainable, with a likelihood that it will end in tears, for some at least. She states ‘While borrowing costs remain very low, many countries are finding a debt-driven growth model increasingly difficult to maintain’ adding ‘High and rising debt-to-GDP ratios are making debt service and refinancing more challenging, and the 2020s are likely to see a greater incidence of debt distress and restructuring’.
However, to make matters worse, going forward, another issue that the report brings up is the financing needs for urgent climate change action. The United Nations' Sustainable Development Goals believes we have to spend approximately USD42tn on infrastructure investments by 2030, but the IIF believes ‘countries with limited borrowing capacity could face severe challenges in meeting development finance needs’.
On the subject of climate change, today the European Commission will propose how the EU will pay for its plan to shift the region's economy to zero CO2 emissions by 2050, whilst protecting industries and regions dependent on fossil fuels from taking the brunt of changes. The European Green Deal is to unveil its Sustainable Europe Investment Plan, in which it hopes to invest over EUR1tn from both private and public money over the next 10 years. The hope is this will go a long way towards transforming the EU into a carbon-neutral region by the middle of this century.