Emergency Virus Spending Will Push Global Debt Ratio Above 100%

(Bloomberg) -- Emergency spending by governments to tackle both the health calamity and economic fallout from the coronavirus is set to push the global debt ratio above 100% for the first time.

The jump in the burden this year alone is forecast by the International Monetary Fund to be close to 19 percentage points, dwarfing the increase in 2009 during the global financial crisis.

The surge reflects shifts in both sides of the public-finance equation. Massive spending programs are coinciding with a slump caused by restrictions on movement that hit everything from manufacturers to hotels and retailers to airlines. The IMF expects the world economy to shrink 4.9% this year.

Despite the fiscal burden, the IMF says governments shouldn’t withdraw any support programs too fast, to avoid causing bankruptcies and drastic damage to incomes. But it also noted that elevated borrowings “will pose an important medium-term challenge for many countries.”

“The trajectory of debt and deficits is subject to high uncertainty and could drift up in an adverse scenario if activity disappoints from a resurgence in infections or if contingent liabilities from large liquidity support materialize when financing conditions tighten,” it said.

The burden is being eased for now by the actions of central banks to keep sovereign borrowing costs low.

Swelling debt is affecting both developed and emerging economies, and the Group of 20 has agreed to provide temporary relief to the poorest nations.

The IMF said a number of governments have sought to use the debt repayment suspension or requested emergency financing, but there are sustainability concerns in many countries.

©2020 Bloomberg L.P.