Debt in emerging and developing economies is largest in 50 years: World Bank

A new study performed by the World Bank Group has revealed that debt in emerging and developing economies went up to a record USD 55 trillion in the last year. This marked an eight-year surge that has been the largest, fastest, and most broad-based in nearly five decades.

Thus, the policymakers are urged to act promptly to strengthen their economic policies and make them less vulnerable to financial shocks. The analysis is contained in Global Waves of Debt, a comprehensive study of the four major episodes of debt accumulation that have occurred in more than 100 countries since 1970. The study found that the debt-to-GDP ratio of developing countries has climbed 54 percentage points to 168 percent since the debt buildup began in 2010.

On average, that ratio has risen by about seven percentage points a year – nearly three times as fast it did during the Latin America debt crisis of the 1970s. The increase, moreover, has been exceptionally broad-based—involving government as well as private debt, and observable in virtually all regions across the world.

The size, speed, and breadth of the latest debt wave should concern us all. It underscores why debt management and transparency need to be top priorities for policymakers – so they can increase growth and investment and ensure that the debt they take on contributes to better development outcomes for the people," said World Bank Group President David Malpass.

"History shows that large debt surges often coincide with financial crises in developing countries, at great cost to the population. Policymakers should act promptly to enhance debt sustainability and reduce exposure to economic shocks," said Ceyla Pazarbasioglu, the World Bank Group's Vice President for Equitable Growth, Finance, and Institutions.

Under the circumstances, policymakers should develop mechanisms to facilitate debt resolution when it becomes necessary, according to the report. Greater debt transparency would also help.