Illustration: Binay Sinha
The International Monetary Fund (IMF) on Monday released its latest working paper on global debt. This year’s working report has been prepared by three IMF economists Samba Mbaye, Mariaaluz Badia and Kyngla Chae. The report has some startling observations to make about a world drowning in debt and the changing geographical distribution of indebtedness.
Firstly, global debt is at a record high of $164 trillion which is more than twice the global Gross Domestic Product (GDP). The report notes, “It is striking that the top three borrowers in the world (United States, China, and Japan) account for more than half of the global debt, significantly greater than their share of global output. The emergence of China among the top ranking is, however, a relatively new development. Since the beginning of the millennium, China’s share in global debt has gone up from less than 3 per cent to over 15 per cent.” Secondly, the report notes that no significant deleveraging has taken place since the 2009 global financial crisis. The report explains, “This reflects an increase in both public and private nonfinancial debt. Public debt increases have been mainly driven by advanced economies while the private debt surge is mainly explained by emerging market economies.” Thirdly, the rise in global indebtedness has been largely driven by the private sector with the sector tripling its debt since 1950. The report comparing this to public debt states, “Although the global debt story has been dominated by the private sector, public debt has also played an important role in this era with two distinct phases: up to the mid-1970s global public debt went steadily down only to reverse its course afterwards.” And lastly, emerging market economies have shown the fastest growth in their debt levels since the 2009 global financial crisis. A look at IMF statistics shows that emerging market economies which includes India, Brazil, Vietnam and many others almost tripled their debt over a decade between 2007 to 2016.
Business Standard analysed where India stands vis-à-vis the world’s developed economies, emerging market economies and low income developing economies in terms of overall debt. This includes private sector debt, household debt, public sector debt, non-financial corporations’ debt, general government and central government debt. The story of India’s overall debt in comparison with other world economies is being presented below in five distinct charts.
Chart 1: India’s vital debt parameters
Even as the world has slipped into debt, India has performed commendably. While central government debt has declined as compared to 2000, households in India haven’t fallen into a debt trap by following the American way of life. Private debt though has exploded but has shown signs of tapering over the last decade.
Chart 2: India’s low household debt
An evidence of India’s low household debt can be seen in the charts below. While credit-fueled economies like the USA have an astronomical household debt to GDP ratio, Asian economies generally do better when it comes to burdening their families with huge loans.
Chart 3: India’s private sector debt
While India’s private sector debt has increased since the start of the century, it has stabilized since 2010. It is nowhere close to developed economies like the UK, Japan and US where private sector debt is astronomical as a proportion of the GDP
Chart 4: India’s non-financial sector debt
The below charts show that India’s non-financial sector debt has also reduced since 2010 while that of China has increased. According to the Financial Times, “The term non-financial debt is used to refer to the aggregate of debt owed by households, government agencies, non-profit organisations, or any corporation that is not in the financial sector. This can include loans made to households in the form of mortgages, or amounts owed on credit cards. It can also include bank loans to corporations, or corporate bonds they have issued to raise money.”
Chart 5: Indian government’s debt
This is an area where India has stabilized quite impressively since the start of the century. Meanwhile, nations like Japan still continue to battle extremely high levels of government debt as can be seen in the chart below.