Global Debt

Global Debt Reaches Record $226 trillion

The sharpest rise in global debt for half a century to a record $226 trillion is adding to economic vulnerabilities, say the IMF’s Vitor Gaspar, Paulo Medas, and Roberto Perrelli in a new blog. As interest rates rise, fiscal policy will need to adjust, especially in countries with higher debt vulnerabilities.

Global debt rose by 28 percentage points to 256 percent of GDP, in 2020, according to the latest update of the IMF’s Global Debt Database. Borrowing by governments accounted for slightly more than half of the increase, as the global public debt ratio jumped to a record 99 percent of GDP. Private debt from non-financial corporations and households also reached new highs.

–Heightened vulnerabilities: The uncertain outlook and heightened vulnerabilities make it critical to achieve the right balance between policy flexibility, nimble adjustment to changing circumstances, and commitment to credible and sustainable medium-term fiscal plans. Such a strategy would both reduce debt vulnerabilities and facilitate the work of central banks to contain inflation.

📺 Watch an event moderated by the FT’s Martin Sandbu, in which Gaspar, World Bank Chief Economist Carmen Reinhart, and Georgetown’s Anna Gelpern debated the implications of record-high public and private debt in the context of rising inflation and a still-evolving pandemic.

Taxes

Photo: aldomurillo/iStock by Getty Images

Taxes to Tackle Inequality

Public debt ratios in Latin America and the Caribbean increased by about 10 percentage points of GDP in 2020. With debt service costs rising, countries in the region are under pressure to cut public spending, raise taxes, or both, even in the face of widespread needs to respond to the pandemic.

Our latest Country Focus, by the IMF’s Santiago Acosta Ormaechea and Samuel Pienknagura Loor, discusses how well-crafted tax reforms can support growth while helping countries maintain fiscal sustainability. Importantly, these reforms can help reduce income inequality—an important objective in one of the most unequal regions in the world.

More use of personal income taxes, combined with credits to incentivize labor force participation, and possibly fewer corporate taxes, could boost growth.

Digital Money

(Ljubaphoto/iStock by Getty Image)

Making E-Money Safer

For regulators charged with protecting consumers, keeping pace with new developments such as electronic money can be challenging. In a new blog, the IMF’s José Garrido and Jan Nolte discuss how regulators can protect customers from the failure of e-money issuers.

A related IMF staff paper considers these and other scenarios that may put consumers and—potentially—entire e-money systems at risk. We examine how regulatory practices are evolving on a country-by-country basis and put forward a set of policy recommendations on regulating e-money issuers and safeguarding their customers’ funds.

Want to learn more about the IMF’s work on digital money and related topics? Visit our eLibrary section on Fintech.

Finance & Development

F&D Special Feature: Africa at a Crossroads

Just published this week in Finance & Development: A new special series of articles provide a closer look at the issues critical for the development of sub-Saharan Africa.

• IMF African Department Director Abebe Aemro Selassie takes wide angle look at how demographics, digitalization and climate response can drive an “African Century.”
• Ken Opalo of Georgetown University provides an unflinching view of what’s at stake if governments in the region don’t democratize the management of their public finances, and why it’s important for the region’s development.
• The IMF’s Pritha Mitra and Ha Vu delve into how pursuing climate-responsive infrastructure investment provides broad-based benefits for society.
• Emerging Markets fund manager and former World Bank economist Gregory Smith explains how the recent emergence of African government borrowing on global capital markets should be celebrated but also include safeguards and improvements. Also be sure to read a recent review of Smith’s book on the subject by the IMF’s Vivek Arora.
• The World Bank’s Hana Brixi, Laura Rawlings and Elizabeth Koechlein describe how improving educational, health and economic opportunities for women and girls is necessary to unlock the region’s immense potential.
• The IMF’s Atish Rex Ghosh and Anna Postelnyak look back at how the IMF and its African Department have evolved since the middle of last century to meet the needs of low-income countries.

Check out our December Issue of Finance & Development. 

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Quote of the Week

“I think we’ve got a new IMF on the continent. The $650 billion in SDRs [Special Drawing Rights], of which $33 billion are coming to Africa, was listening to what the Africans were saying–that we don’t have the fiscal space.”

—World Trade Organization Director-General Ngozi Okonjo-Iweala during an event marking the 60th anniversary of the IMF African Department.

WEEKLY ROUND-UP

01. The Managing Director on UK Outlook

The recovery of the UK economy has been faster than expected amid strong continued policy support, yet capacity constraints and rising price pressures have emerged while new COVID-19 variants pose downside risks to the outlook, IMF staff said at the end of an official Article IV visit. Speaking at a press conference, Managing Director Kristalina Georgieva said that COVID-19 and the changes it has caused would not fade quickly. “These changes have strained supply chains, contributed to rising prices, and tightened labor markets, putting pressure on inflation, both globally and in the UK,” she said. This week the Bank of England became the world’s first major central bank to raise interest rates since the start of the pandemic.

02. 60 Years of the IMF in Africa

IMF African Department Director Abebe Aemro Selassie was joined by Deputy Managing Directors Bo Li and Antoinette Sayeh, and a host of other distinguished panelists for an event commemorating the 60^th anniversary of the Fund’s African Department. Panels discussed the topics of IMF and Africa: Sixty Years of Africa’s Development and Perspectives on the Future of Africa in a Post-Pandemic World in two separate roundtables. Click here for more information and to view the event recording.

03. Dangers of Divergence

IMF Managing Director Kristalina Georgieva pointed to a “divergence” between the growth rates of sub-Saharan African countries and those of advanced economies as global growth rebounds next year. In a statement at the conclusion of a meeting with African Ministers of Finance on the region’s economic prospects, Georgieva said sub-Saharan Africa was likely to grow by 3.8 percent next year, compared with 4.9 percent for world economy as a whole. “The countries in the region should continue to address the health crisis, while ensuring that policies are well-targeted and consistent with the maintenance of macroeconomic stability,” she said.

Read two new op-eds by Georgieva published shortly after her trip to the region last week. One piece with Senegal President Macky Sall envisions ways to boost Africa’s recovery. In another piece, Georgieva and Democratic Republic of the Congo President Félix Tshisekedi make a case for more international support to help African countries adapt to climate change.

04. New Global Partnerships for Capacity Development

The pandemic crisis has made it even more crucial for development partners to join forces in support of Sustainable Development Goals. This week, the IMF announced three additional partnerships on capacity development with: the United States (benefiting the IMF’s Caucasus, Central Asia, and Mongolia regional capacity development center), Belgium (contributing to the IMF’s COVID-19 Crisis Capacity Development Initiative, Revenue Mobilization Thematic Fund, and regional centers for Central and West Africa), and the Swiss State Secretariat for Economic Affairs (supporting Public Financial Management reforms in Mozambique). Over half of IMF Capacity Development activities are partner-funded.

MARK YOUR CALENDAR

01. A Call for Papers

The IMF will host a joint conference with the Bank of International Settlements, Bank of England, and European Central Bank to examine new global challenges amid incomplete and divergent recoveries. The conference is accepting submissions of papers on (i) understanding the drivers and dynamics of global inflation and the natural rate of interest; (ii) analyses of economic trade-offs in a global environment of divergent and incomplete recoveries, particularly for monetary policy; and (iii) how emerging trends related to automation, digital currencies and climate mitigation may trigger changes in global integration patterns and spillovers and create new international policy coordination challenges. The deadline is January 31, 2022. Click here for more information.