Global government debt reaches highest level since 1880

Government debt worldwide has risen to levels historically seen only during world wars. For emerging economies, the debt-to-GDP ratio now stands at around 78%, the highest point in data going back to 1880. In rich countries, the ratio has been above 100% of GDP for ten years already. That is according to figures from the IMF, shared by The Kobeissi Letter.

In brief:

• Debt-to-GDP ratio of emerging economies stands at around 78%, the highest level in 145 years
• In rich countries, the ratio has been above 100% of GDP for ten years
• Since the 2008 financial crisis, the debt of emerging economies has more than doubled

Emerging economies cross historical thresholds

For emerging economies, the debt-to-GDP ratio never exceeded 60% before 2020. Now that threshold is approaching 80%, a level that was not reached even during the Second World War. The peak during that war was around 45%.

Since the 2008 financial crisis, this ratio has more than doubled for emerging markets. That makes the current situation exceptional: not a temporary wartime economy, but a structural increase in government debt in peacetime.

Rich countries have been above 100% for ten years

In the so-called advanced economies, such as those of Western Europe, the US and Japan, the debt-to-GDP ratio now stands at around 108%. That is a historically high level for this group too. Before the 2008 financial crisis, that ratio was still below 80%.

The Kobeissi Letter, which summarises the IMF data, states that deficit spending has become a global problem. Governments structurally spend more than they collect in revenue, meaning debts keep growing even in periods without major economic shocks. Whether and when this leads to problems for interest rates, exchange rates or financial stability depends on the willingness of markets to continue financing government debt.