Global debt drops but hits record high in developing countries, plus other economy stories you need to read this week

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

Author: Ian Shine, Senior Writer, Formative Content

• This weekly round-up brings you the latest stories from the world of economics and finance
• Top economy stories: Ukraine looks to secure ‘sizeable’ IMF support; Global debt drops but hits record high in developing countries; Hong Kong to issue cash handouts to support economy.

1. Global debt drops for first time since 2015, but hits record level in developing countries

The amount of debt in the global economy saw its first annual fall in dollar terms last year since 2015, thanks partly to the post-pandemic rebound in growth, but also because of inflation. The nominal value of global debt declined by $4 trillion in 2022, bringing it fractionally back under the $300 trillion threshold breached in 2021, according to a report from global banking trade group the Institute of International Finance (IIF).

But the fall was driven entirely by wealthier countries, whose total debt declined by roughly $6 trillion to $200 trillion. The amount of developing world debt hit a new record high of $98 trillion, with Russia, Singapore, India, Mexico and Vietnam seeing the largest rises.

“The external public debt burden of many developing countries worsened due to sharp losses in local currencies against the dollar,” the IIF said.

The ratio of global debt-to-GDP dropped by over 12 percentage points to 338% of GDP, marking the second annual drop in a row. But the improvement was again driven by developed markets, which saw an overall 20 percentage points fall to 390%. The emerging market debt ratio rose by 2 percentage points to 250% of GDP.

However, investment bank JPMorgan says the modest falls in developed-market debt in 2022 pale into insignificance give the huge rise since the global financial crash 15 years ago. It calculates that developed market public-sector debt as a share of GDP has surged to 122%, from 73% just before the crash.

“The step-change in debt in just 15 years raises questions of sustainability,” JPMorgan analysts say.

2. Hong Kong to issue cash handouts to support economy

Hong Kong will give more cash handouts to all permanent residents and offer help to first-time home buyers to try and spur an economy recovery from prolonged COVID-19 restrictions, the city’s government announced in its budget this week.

This is despite the global financial hub heading for a record deficit of HKD140 billion ($17.8 billion) in 2022-2023, Financial Secretary Paul Chan said. That is around 5% of GDP, and more than double the HKD56 billion the government initially estimated.

“I believe that Hong Kong’s economy will visibly recover this year, and I remain positive,” Chan said, adding that he would take a “moderately liberal” fiscal stance to sustain the impetus for economic recovery.

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Hong Kong will issue vouchers worth HKD5,000 ($637) to all adults this year, half the amount issued in 2022. And after property prices fell more than 15% last year, the government will reduce stamp duty for local first-time buyers on properties valued at up to HKD10 million ($1.25 million). This will benefit an estimated 37,000 buyers and cost the government HKD1.9 billion ($250 million).

There are concerns over the sustainability of Hong Kong’s fiscal reserves, after authorities spent more than HKD 600 billion ($76 billion) containing the spread of COVID and providing relief for businesses and families struggling with pandemic restrictions.

News in brief: Stories on the economy from around the world

Ukraine could secure “sizeable support” from the International Monetary Fund (IMF) under a new, longer-term programme, and its economy should see a gradual recovery over the course of this year, IMF Managing Director Kristalina Georgieva says. Ukraine hopes to agree a multi-year $15 billion programme in what could be the largest loan package for the country since Russia’s full-scale invasion a year ago, Prime Minister Denys Shmyhal says.

US consumer debt hit a new record of $16.9 trillion at the end of 2022, up by $1.3 trillion on the year, CNBC reports. And rates of non-payment have risen on several types of loans, the New York Federal Reserve says. The increases follow numerous interest rate hikes because of soaring inflation.

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Eurozone inflation was only a touch higher in January than earlier estimated, confirming that price growth is now well past its peak, even if underlying price pressures still show no signs of abating. Consumer price inflation eased to 8.6% in January from 9.2% a month earlier, coming in just above the 8.5% estimated earlier this month.

Japan’s core consumer inflation hit a fresh 41-year high in January, keeping the central bank under pressure to phase out its massive stimulus programme. But incoming Bank of Japan Governor Kazuo Ueda says it must maintain ultra-low interest rates to support the fragile economy. Japan’s manufacturing activity contracted at its fastest pace in 30 months in February.

Pakistan’s current account deficit (CAD) has dropped by 90% amid a rapid depreciation of the rupee that has slowed imports. The CAD – the amount by which the value of a country’s imports exceeds the value of its exports – fell to $200 million in January from $200 billion in late 2022. The rupee has lost more than a quarter of its value against the US dollar in less than a month, following the removal of artificial caps.

Turkey’s central bank has cut its main interest rate to 8.5% from 9% as it looks to cushion the economic impact of a devastating earthquake that killed more than 43,000 people in early February. A government official says the earthquake will result in inflation staying above 40% and result in the need for an additional budget.

Germany’s Finance Minister says the country must end its expansionary fiscal policy or risk fuelling inflation. Christian Lindner told Reuters that “rising interest rates are already a signal for the government to see that it can’t continue like this“.

South Korea has kept its interest rates steady at 3.5% and the central bank says the monetary tightening campaign it began 18 months ago will not resume if inflation follows an expected path towards moderation.

Canada’s annual inflation eased more than expected to 5.9% in January, backing up the Bank of Canada’s aim to pause its interest rate rises, in order to let previous hikes sink in. The country’s benchmark rate rose to a 15-year high of 4.5% in January, when the Bank of Canada became the first major central bank to say it would hold off on further increases.

US President Joe Biden has nominated former Mastercard CEO Ajay Banga to lead the World Bank. He hopes that Banga’s ties to the private sector and emerging markets will jump-start an overhaul at the Bank to help it better address the climate crisis.

The UK public sector spent less money than it received in tax payments in January. The surprise £5.4 billion ($6.5 billion) surplus could give the government the ability to offer consumers extra support on energy bills or solve a wave of public-sector strikes, according to The Financial Times.

Sri Lanka’s annual consumer price inflation eased to 53.2% in January from 59.2% in December. The country hiked power prices by 66% last week, as part of efforts to secure a bailout from the International Monetary Fund amid its worst financial crisis in more than seven decades.

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Iran’s currency has plummeted to a record low against the US dollar, as sanctions over Tehran’s nuclear programme continue to bite. The rial fell below the psychologically key level of 500,000 per dollar on 20 February. Iranians have been buying dollars, other hard currencies or gold amid inflation of 50%, suggesting further headwinds for the rial.

More on the economy on Agenda

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Europe has spent more than $800 billion supporting customers through the energy crisis, according to latest figures. The biggest spender was Germany, which allocated a massive $286 billion to support energy consumers. But are there different ways to provide support when energy costs shoot up?

The US economy has returned to its pre-pandemic growth trajectory, with real GDP rising 2.1% in 2022. But experts say it could pay the price for the swift recovery, with a slowdown or even a recession predicted for 2023.