The global debt reached a record 182 trillion USD in 2017, rising by 50% over a decade. The picture, however, seems even more bleak when considering public assets, says the statement of the International Monetary Fund.
The IMF has presented its six-month fiscal report with a new database that shows a significant net wealth accumulated in 31 countries, which account for 61% of global economic output. The assets in these countries are worth about 101 trillion USD, or twice over their GDP.
“When governments realize the size and nature of public assets, they can start managing them more effectively”, said the IMF in its report. “The potential benefits of better asset management are significant”, adds the fund.
The IMF says the revenue benefits of non-financial public companies and government financial assets could reach 3% of GDP each year, equivalent to annual corporate tax revenues in developed economies. At the same time, the IMF underlined that the risks for the global financial system have emerged over the last six months, and they may be tightened if the pressure of emerging markets escalates or global trade relations deteriorate further.
The Fund also notes that while the banking system has been bolstered by regulators during the decade of the global financial crisis in 2008, the relieved financial conditions contribute to the accumulation of vulnerabilities, such as high debt levels or “excessive” asset ratings. The new bank rescue regimes, which are designed to avoid future bankruptcies, are largely untested.
“The short-term risks to global financial stability have increased somewhat”, said the IMF. “Overall, market participants seem to be complacent about the risk of sharp tightening of financial conditions”, adds the Fund.
The IMF Capital Markets Director Tobias Adrian said the potential shocks to the system could happen in many forms, for example, higher than expected inflation that would trigger a sharp rise in interest rates or a “chaotic” Brexit.
The impact of these shocks will be determined by vulnerabilities, including rising levels of non-financial debt, which is now exceeding 250% of the GDP, worsening write-off standards outside the traditional banking sector, and higher asset prices that can rapidly decline.
“The rapid accumulation of debt in China in recent years is also a concern, although the Chinese authorities have taken steps to curb debt growth”, said Tobias Adrian.
According to the IMF report, the economic growth has clearly reached its peak in some major economies, while the gap between developed and emerging markets is expanding. Earlier, the IMF lowered its global growth forecast mainly due to the US-China trade war and growing financial difficulties in emerging markets.
The US has continued to grow strongly and the Federal Reserve has raised interest rates for the seventh time in the last eight quarters. The stock markets are also at record levels.
This contrasts with the slowdown in the Eurozone and Japan. China’s economy also shows signs of moderate growth, largely due to tensions with the United States.