According to Janus Henderson, the investment company, total sovereign debt will grow by 9.5% this year to reach a record $71.6 trillion, putting pressure on economic recovery and GDP growth. The main reason for the increase in debt is the consequences of the fight against the COVID-19 pandemic, when governments actively resorted to borrowing to stimulate the economy, help businesses and citizens.
Researchers at the British management company Janus Henderson published another Sovereign Debt Index dedicated to sovereign debt worldwide. It is noted that according to the results of 2021, the total sovereign debt worldwide increased by 7.8%, to $65.4 trillion. This year, the debt will grow even more – by 9.5%, to a new record – $ 71.6 trillion.
Experts believe that along with the growth of debt, the costs of servicing them will also increase, which “will put a heavy burden on taxpayers.” This year alone, costs will rise by 14.5%. Analysts emphasize that the growth of borrowing in 2021 occurred in all countries of the world. The increase in total debt this year will be largely due to the United States, China and Japan. China was the leader last year, where debt rose by about 20%, by $650 billion, to $3.9 trillion. The UK is seeing the largest increase in debt service costs due to rising inflation and quantitative easing.
According to Janus Henderson, the main reason for the growth of sovereign debt is the COVID-19 pandemic, during which the authorities of the countries of the world actively resorted to borrowing to stimulate the economy, to help businesses and citizens.
“Governments around the world continued to borrow heavily as the pandemic dragged on for the second year in a row. The growth in economic activity provided some support to the financial capacity of governments, but now the inflation factor has manifested itself – it has begun to push up market interest rates, and this will lead to an increase in the costs of servicing the debt burden that has grown during the COVID-19 pandemic, ”the study says. In total, since the beginning of the pandemic, the total global sovereign debt has increased by 25%.
At the same time, it is noted that due to the start of economic recovery in 2021, the debt-to-GDP ratio on average around the world improved slightly, falling from 87.5% in 2020 to 80.7% in 2021. But in the coming years, this value will grow again, approaching the record values of 2020. According to Janus Henderson, by 2025 the ratio of sovereign debt to GDP in the world will reach 84%.
Experts note that the military conflict between Russia and Ukraine has become a new significant factor of instability, which is already affecting the financial policies of some countries. For example, the German government decided to increase its defense spending to 0.6% of GDP. “The issue of strengthening energy security will also require significant investment. New factors may put pressure on the fiscal policy of Western governments for several more years. In this context, it is possible that a new round of quantitative easing may become necessary,” the study emphasizes.