IMF: Debt Levels At Historic High, Govts Should Look To Trim

Debt, as measured globally, is at the highest levels ever seen, at an aggregate of $164 trillion.

Is it time to sound the alarms? The International Monetary Fund (IMF) is recommending that governments reduce the debt held on their balance sheets, CNBC reported.

The latest tally, reflecting the debt load carried at the end of 2016, represents 225 percent of the world’s GDP. Those stats come from the April Fiscal Monitor published by the IMF. The 2016 debt figure is 9 percent higher than the debt measured right after the global financial crisis of 2009.

The IMF said that debt taken on by developed markets dwarfed that of emerging economies. In the case of advanced economies, debt was 105 percent of GDP. “Middle income economies,” CNBC reported, had debt of around 50 percent of GDP. The tally stood at about 40 percent of GDP for low-income economies.

Thus, said Vitor Gaspar, director of the fiscal affairs department of the IMF, to CNBC: “Challenges … will unavoidably come in the future,” and governments should strive to cut debt levels. “Because times are good,” he emphasized. “It’s exactly in good times that you can build buffers and resilience.”

Gaspar said the IMF believes public debt to GDP ratios for advanced economies — excluding the U.S. — will decline through 2023.

As far as the U.S. is concerned, said Gaspar, “the United States is the only country where the public debt-to-GDP ratio is forecast to go up, from 108 percent of GDP in 2017 to 117 percent in 2023.” Tax cuts and consumer spending will spur that increase, he said.

Other reports underscore that risk. The IMF’s Global Financial Stability Report, which debuted earlier in the month, sees short-term risks as having “increased somewhat” — in this case tied to stock market volatility. As CNBC also noted, Tobias Adrian, who is director of the IMF’s monetary and capital markets department, said that “what we have seen so far is that the discussions about trade and the actions that have been taken have increased investor uncertainty, and, as a result, valuations have adjusted. Financial conditions are a little bit tighter than they were six months ago, but they remain, overall, fairly easy.”

Other signs point, perhaps, to a struggle with debt that may be brewing on the horizon.

As reported earlier this month, mortgage data tracker CoreLogic found that about one in five conventional mortgage loans done in recent months were extended to creditors who were, and have been, paying more than 45 percent of their monthly incomes toward their mortgage and debts.