IMF warns on record global debt load driven by China

The International Monetary Fund (IMF) today warned that global debt levels have reached unprecedented levels as it urged governments to fix their roofs while the sun is shining.

The worlds debt load reached $164 trillion (£115 trillion) in 2016, equivalent to 225 per cent of global GDP, the IMF said in its latest fiscal monitor, published to coincide with annual meetings at its Washington headquarters.

The world is now 12 cent of GDP deeper in debt, including public and private, than at the previous peak in 2009, thanks mainly to a big build-up in Chinese borrowing.

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China alone contributed 43 per cent to the increase in debt since 2007, the IMF said, urging the worlds second largest economy to cut its augmented deficit, which includes government-backed local authority debt, by 0.5 per cent of GDP every year, moving spending towards education and social security.

“Consolidation should only be interrupted if growth were to fall significantly,” the report said.

However, the IMF also warned richer economies they should use the uptick in global growth to lower debt levels.

Public debt-to-GDP ratios will fall in the majority of countries, the IMF predicts, although it singled out the US as a major exception. The US government under Donald Trump has introduced unfunded tax cuts which are predicted to raise government borrowing significantly.

Read more: IMF upgrades UK growth outlook but says global trade risks being torn apart

Vitor Gaspar, director of the IMFs fiscal affairs department, delivered a rebuke to the US administration. He said: “We urge policymakers to avoid pro-cyclical policy actions that provide unnecessary stimulus when economic activity is already pacing up.”

Public debt in advanced economies still accounts for an average of 105 per cent of GDP, reflecting the massive deficits countries were forced to run to bail out banks and continue public services during the financial crisis.

The IMF added that financial vulnerabilities have increased since its last report in October, before the bout of equity market volatility which sent investors scrambling for cover.

Valuations of risky assets are still stretched, with some late-stage credit cycle dynamics emerging, reminiscent of the pre-crisis period,” according to the global financial stability report, also published today.

Read more: Central bankers warn of $13 trillion hole in global debt calculations

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