The Strategist

Experts: Pandemic results in record increase in sovereign debt worldwide

04/07/2022 - 09:46

According to Janus Henderson investment firm analysts, overall debt of governments around the world would rise by 9.5 percent this year to a new high of $71.6 trillion, placing downward pressure on economic recovery and GDP growth.
A new Sovereign Debt Index, focused to sovereign indebtedness around the world, was issued by Janus Henderson, a British management firm. By the end of 2021, the paper states, global sovereign debt had increased by 7.8%, reaching $ 65.4 trillion. The debt will rise even more this year, by 9.5 percent, reaching a new high of $71.6 trillion.

Experts forecast that if the debt grows, so will the costs of their services, which "will throw a heavy strain on taxpayers." Costs will increase by 14.5 percent this year alone. According to analysts, the growth in borrowing in 2021 occurred in every country on the planet. The United States, China, and Japan will account for the majority of the growth in total debt this year. China was the leader last year, with a debt increase of roughly 20%, or $650 billion, to $3.9 trillion. The greatest significant increase in debt service expenses is observed in the United Kingdom due to rising inflation and a quantitative easing program.

Janus Henderson experts call the COVID-19 pandemic the main reason for the growth of sovereign debt, as the authorities of the world actively resorted to borrowing to stimulate the economy, helping businesses and citizens.

It is noted that due to the beginning of economic recovery in 2021, the debt-to-GDP ratio slightly improved, declining from 87.5% in 2020 to 80.7% in 2021. But it will rise again in the coming years, approaching record levels in 2020. Janus Henderson expects that by 2025 the global sovereign debt-to-GDP ratio will reach 84%.