This chart shows how global debt comes in waves – and, right now, we’re in the middle of the biggest one yet

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Victoria Masterson, Senior Writer, Formative Content


  • Since 1970, three debt waves have ended in financial crises for emerging and developing economies, according to the World Bank.
  • The fourth and current debt wave started in 2010 and was of serious concern even before COVID-19.
  • Global public debt will be at around 100% of GDP until 2025, says the International Monetary Fund.
  • Economic output is expected to recover as vaccines are rolled out, but the outlook for borrowing is harder to predict.

The world is currently experiencing unprecedented levels of debt, as governments continue to battle the coronavirus. But this is not the first time global debt has spiked.

There have been four waves of debt accumulation in the global economy since 1970, according to the World Bank.

These have occurred across more than 100 countries and have, so far, always culminated in financial crises in many emerging and developing economies.

The fourth debt wave, which is still ongoing, started in 2010 and – even before the COVID crisis – looked like being the worst yet.

“The size, speed and breadth of the latest debt wave should concern us all,” World Bank Group President David Malpass said at the launch of the World Bank’s study Global Waves of Debt: Causes and Consequences in December 2019, weeks before the start of what became the COVID-19 pandemic.

The fourth wave of global debt started in 2010 and is already the largest of them all. Image: IMF, World Bank

Ballooning debt

Since then, government borrowing has soared as countries battle to keep their economies afloat during global lockdowns.

In November 2020, the Institute of International Finance predicted that global debt would surge to $277 trillion by the end of that year, representing a debt-to-GDP ratio of 365%.

Around $12 trillion has been spent so far on unprecedented fiscal actions, including temporary tax cuts, loans and capital injections, the International Monetary Fund (IMF) found in its latest Fiscal Monitor.

Combined with economic stimulus measures already in the pipeline, this is forecast to push public debt globally to a record level of about 100% of GDP until 2025.

Unprecedented Fiscal Response to an Unprecedented Crisis
$12 trillion has been spent so far on the global response to COVID-19, according to Vitor Gaspar, Director of the IMF’s Fiscal Affairs department. Image: IMF

Listen here.

Lessons from the past

History shows it is not unusual that countries can keep borrowing even when default risk is high.

“A review of 89 default episodes from 1827 to 2003 shows the typical experience to be a sharp rise in borrowing, both external and domestic, in the run-up to default,” say the authors of a 2020 blog for the IMF, entitled The Debt Pandemic. “Ideally this time will be different, but the record is not encouraging.”

Historical data is vital in predicting future potential trends and government indebtedness is a key guide to economic health.

The IMF’s DataMapper tool includes data on central government debt going back to the 1950s and has an interactive timeline showing how the world’s debt map has changed over the decades.

In 1950, for example, government debt in the United States as a percentage of GDP was 78.2% – a year when the Korean War boosted growth and debt in the country, according to US personal finance site The Balance.

In the battle against COVID-19, forecasters expect economic output will recover as vaccines are rolled out, but say the outlook for borrowing is harder to predict.

“These growing debts have been manageable thanks to an extended period of low interest rates and loose monetary policy,” says financial writer Marcus Lu in a blog for the World Economic Forum. “But whether or not this is sustainable remains to be seen.”

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Ukrainian civil war: Is this the beginning of the end or the end of the beginning?

Syria: UN Humanitarian Coordinator calls for unimpeded access from within the country

Zimbabwe facing man-made starvation, says UN expert

Take-home pay growing at lowest level since 2008, as gender-gap persists: UN labour agency

European Youth, quo vadis?

Parliament votes reform for better European Co2 market but critics want it sooner than later

‘Pioneering’ former Chilean President Michelle Bachelet officially appointed new UN human rights chief

The EU will always have a stable partner in Montenegro, says President Đukanović

Statement by the European Commission following the extraordinary meeting of the EU-UK Joint Committee

Our healthcare systems are ailing. Here’s how to make them better

China has announced ambitious plans to cut single-use plastic

Canada grants asylum for Saudi teen who fled family: UNHCR

The experience economy is booming, but it must benefit everyone

Mobile technology: health in your hands

Draghi strives to control the unruly exploitation of financial markets by banking leviathans

Boardroom warriors: how CEOs are becoming champions of change

China dazzles the world with her Silk Road plan to connect, Asia, Europe and Africa

Where EU air pollution is deadliest

MEPs demand Bulgaria’s and Romania’s swift accession to Schengen area

European banking stress tests 2014: A more adverse approach for a shorter banking sector

5 lessons for social entrepreneurs on how to change the system

Hostilities in Syria’s southwest, mean cuts in vital aid across Jordanian border: Senior UN official

Human trafficking, slavery reports and health of migrants in Libya

The ECB must extend its money stimulus beyond 2018: Draghi reckoning

The role of junior entrepreneurs as a bridge between academia and business world

Air pollution: How to end the deaths of 7 million people per year

How the world can ‘reset’ itself after COVID-19 – according to these experts

Top envoy to Yemen praises ‘flexibility’ of chief negotiators as new UN mission chief is named

The priority for workplaces in the new normal? Wellbeing

Traffic congestion cost the US economy nearly $87 billion in 2018

A Valentine’s Special: giving back, a dialogue of love

Great Reset: Why LGBT+ inclusion is the secret to cities’ post-pandemic success

‘Dire consequences’ for a million children in the Middle East, North Africa, as funding dwindles

What is digital equality? An interview with Nanjira Sambuli

Millions denied citizenship due to ideas of national, ethnic or racial ‘purity’: UN rights expert

European Parliament backs CO2 emissions cuts for trucks

The hazards of “heroism” in the time of COVID-19

UN chief appoints Luis Alfonso de Alba as Special Envoy for the 2019 Climate Summit

Tsipras doesn’t seem to have learned his “almost Grexit” lesson and Greece faces again financial and political dead end

Financial services: Commission sets out its equivalence policy with non-EU countries

In The Bahamas, Guterres sees impact of ‘Category Hell’ hurricane, ‘powered by climate change’

Health Education, is it a necessity?

This farmer is saving the jungle by growing food in it

This company grows crops inside, stacked on top of one another

Finnish Council Presidency priorities debated in plenary

Anti-vaccination movement affecting youth in Europe

College meeting: European Commission reorganises the “Task Force for Relations with the United Kingdom” into the “Service for the EU-UK Agreements”.

Here’s what travelling could be like after COVID-19

Antarctica: the final coronavirus-free frontier. But will it stay that way?

Impressions of China

London wants new skyscrapers to protect cyclists from wind tunnels

A staggering one-in-three women, experience physical, sexual abuse

To keep track of the SDGs, we need a data revolution

Ebola situation worsening in DR Congo, amidst growing ‘funding gap’ UN health agency warns

EU Summit’s major takeaway: a handkerchief cannot save Greece from austerity

German heavy artillery against Brussels and Paris

ECB’s Draghi favours a cheaper euro to serve all Eurozone countries

The EU Parliament unanimously rejects Commission’s ideas about ‘seeds’

ECB intervenes to clean May’s and Schäuble’s mess

2030 development agenda: Major breakthrough for world of work

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s