According to the Basel-based Institute of International Finance (IIF), global debt was fast approaching $300 trillion by the end of 2021. Global debt, which was at the level of $259.7 trillion even at the end of the first quarter of 2020 when the coronavirus pandemic was just starting to affect the world, reached $288.7 trillion at the end of the first quarter of 2021. The roughly $5 trillion of the $30 trillion increase in the last one year came from households; $8 trillion from the real sector; $3 trillion from the financial sector and the largest part of all – roughly $14 trillion – was created by the public sector, thus the governments of developed economies. By the fall of 2021, it had stood at $296 trillion with an increase of $36 trillion.
In terms of the course of global debt over the next few years, the IIF's projection is that the size of global debt will increase by another $1.8 trillion in 2022. By 2025, an increase of between $3.8 trillion and $7 trillion is expected depending on the debt trend. The world's leading international economic institutions and economists define the "global debt spiral," which is estimated to have reached 365% of the global gross domestic product (GDP) by the end of 2021, at the top of the most important risks for the world economy. Household debt, which was $19 trillion at the end of 2000, reached $55.3 trillion by mid-2021; the $26 trillion corporate debt reached $86.2 trillion by the end of 2021; likewise, the $22 trillion public and government debt reached $85.7 trillion; and the $20 trillion debt of financial institutions reached $68.8 trillion by mid-2021.
It can easily be seen that the most significant part of the $209 trillion increase over the last 21 years is due to the jump in the debt of real sector companies and the public sector. This situation indicates that the real sector financed a significant part of its investment move over the last 21 years by borrowing; and it also points out that a significant transfer of resources from the real sector to the finance sector has occurred due to the high borrowing costs of the real sector and their debt repayments. For this reason, it is emphasized that there has been a very dangerous imbalance in the level of profitability between the real sector and the finance sector in the last 21 years – I’ve previously shared with you the important warnings of the United Nations on this issue.
Between 2010 and 2021, the annual amount of foreign debt capital and interest payments of emerging economies increased by 120% on a global scale. A very meaningful resource that can be directed to the development of countries is used in foreign debt payments. In these countries, the resources allocated only to external debt payments from the budget or public revenues, which was 6.8% in 2010 and increased to 14.3% by the end of 2021. There is a global call for the leading countries of the G-7 and G-20 to not bury their heads in the sand regarding the global debt spiral. The countries in the middle-low income group will make 47% of their external debt payments to private sector financial institutions and companies, 27% to international institutions such as the World Bank and the International Monetary Fund (IMF), 12% to China alone and 14% to other governments.
The global debt spiral urgently needs to be addressed.