World debt balance as of March 2020 260 trillion won → end of last year 303 trillion won
The Fed predicts an aggressive rate hike amid 27% growth in emerging market debt
Foreign currency outflows and currency depreciation in emerging countries… Concerns about debt repayment burden↑
In some countries such as Nigeria, there is already a shortage of dollars [Edaily Reporter Bang Seong-hoon] The debt of governments, businesses and households around the world has surged by $43 trillion during the COVID-19 pandemic. As the U.S. Federal Reserve begins to withdraw the money it had set aside to fight the coronavirus, concerns are raised that an escalating debt burden in emerging and low-income countries could hamper the global economic recovery.
According to the Nihon Keizai Shimbun on the 18th, the global debt balance, which encompasses governments, businesses, and households, has risen from $260 trillion at the end of March 2020, when the COVID-19 pandemic began, to $303 trillion at the end of 2021.
The debt increased to $43 trillion during this period, equivalent to half of the worlds gross domestic product, and it is the result of governments around the world investing huge amounts of money to respond to the COVID-19 crisis.
In particular, the US economy continued to perform well during the pandemic thanks to its enormous liquidity. The Dow Jones Industrial Average has risen more than 50% in two years, which has also boosted the global stock market capitalization by 60%. During the same period, the number of bankruptcy filings by U.S. companies fell by 40%, and U.S. home sales rose more than 20%.
However, the combination of abundant liquidity and a worsening supply chain caused inflation to surpass expectations by nearly 8%, the highest level in 40 years. In response, voices calling for intensive austerity from the Fed followed warnings that the US economy could face a situation of stagflation, in which both high inflation and recession occur at the same time.
As a result, the Fed raised its key interest rate by 0.25 percentage points the previous day to 0.25-0.50%. Liquidity was recovered to counter inflation. The Fed also suggested the possibility of raising rates seven times this year.
Emerging and low-income countries are at a standstill as the Feds hawkish stance intensifies. Emerging market debt has grown by 27% over the past two years, raising concerns that repayment burdens will increase. If the dollar strengthens, it is highly likely that investment funds concentrated in emerging markets will move to the US financial market, which has relatively high interest rates. If the foreign currency is depleted, the currencys value against the dollar will fall further, and the burden of debt repayment increases.
Some emerging and low-income countries are already experiencing a dollar shortage. In the case of Nigeria, export companies have been forced to pay taxes in dollars, etc. In Sri Lanka, the currencys value plummeted by up to 10% in seven days due to the recent shortage of foreign currency.
“I am concerned about whether the global economy will be able to withstand the Feds rate hike,” said Nikkei. pointed out