It isn’t just America that has a debt crisis, it’s a worldwide affair. Global debt has surged to a record high, and the International Monetary Fund warns that countries need to start cutting their spending now to avert a crisis.
In their April Fiscal Monitor, the IMF noted that in 2016 total global debt levels came in at a record $164 trillion in 2016, amounting to 225 percent of the world economy’s gross domestic product. This is 12 percentage points higher than the last record, experienced in 2009, immediately after the global financial crisis.
The IMF recommends that countries capitalize on the current, strong economy and reduce their debt as much as their individual financial positions allow.
High debt burdens mean countries are spending more money on interest. Another major concern is what will happen when the next recession hits. According to the IMF, if a downturn hits when debt is high, then it could prolong the ensuing recession.
In 2017, more than one-third of advanced economies had debt above 85 percent of GDP, three times more countries than in 2000. One-fifth of emerging market and middle-income economies had debt above 70 percent of GDP in 2017, similar to levels in the early 2000s in the aftermath of the Asian financial crisis. One-fifth of low-income developing countries now have debt above 60 percent of GDP, compared with almost none in 2012.
The IMF added that debt ratios are considerably higher when including pension and health care spending liabilities. This inclusion doubles the average debt-to-GDP ratio to 204 percent among advanced economies, 112 percent among emerging market and middle-income economies, and 80 percent among low-income developing countries.