Coronavirus: Global debt soars to $388 trillion as governments borrow big

The fight against the health crisis has come at an enormous cost to governments’ bottom lines.

RBA deputy governor Guy Debelle. Picture: AAP

Global debt has ballooned to a ­record $388 trillion — or more than three times the entire world’s gross domestic product — as ­governments around the globe borrow heavily to shield their economies from the pandemic-­induced recession.

New analysis from the Washington-based Institute of International Finance reveal that private and public borrowing reached $US258 trillion ($370 trillion) by March. The IIF estimates an additional $US12.5 trillion ($18 trillion) was added to the pile in the June quarter, “largely reflecting the global fiscal and monetary ­response to the pandemic”.

The increase in debt issuance through the three months to June would be more than double the average quarterly pace in 2019 of $US5.5 trillion, the IIF said.

In total, the global debt now represents about 340 per cent of annual world output.

While Australian governments have avoided the steep build-up in debt experienced in other advanced economies, the cost associated with carrying the economy through the COVID crisis will be large.

The Morrison government has already committed $210bn in support and stimulus measures in this and the past financial year to ensure as many Australian businesses and households as possible can survive the economic shock.

ANZ economists estimate that Australia’s gross debt as a percentage of GDP will reach about 45 per cent by the middle of next year, or $880bn – an increase of more than $220bn since 2019.

The decline in borrowing costs has facilitated a worldwide gearing up of balance sheets, which has led to occasional financial crises, such as in Asia in the second half of the 1990s and the global ­financial crisis in 2008-09.

Reserve Bank of Australia deputy governor Guy Debelle has said that with lending rates virtually at zero, there is no penalty to borrowing more as long as we can grow the economy by more than 1 per cent a year into the future.