The value of global debt dropped. The value of global debt continued to decline in the third quarter/2022. However, an increase in the benchmark interest rate which discourages new loans will also trigger debt swelling in the future. The Institute of International Finance (IIF) revealed that total global debt fell by US$6.4 trillion in the third quarter of 2022 to around US$290 trillion. The decline was reinforced by a surge in the US dollar which makes loans in other currencies appear smaller when converted into greenbacks.
The value of global debt dropped. On the other hand, there is a risk that an increase in the central bank’s benchmark interest rate to control inflation will lead to sharp increases in the cost of servicing household, business and government debt. IIF economists assess that global debt interest bills will soar. “Higher financing costs are a major source of financial and social stability risks across highly indebted countries.” said the economist.
According to IIF, risks are concentrated among low-income households and small businesses because they are more exposed to loans with floating interest rates. Group of Seven developed countries as well as emerging markets in Europe and sub-Saharan Africa will face much larger interest payments, he said. As part of the world economy, the value of debt fell to 343 percent or about 20 percentage points below last year’s peak of the pandemic. Soaring inflation in many countries has helped erode the debt burden measured against economic output, as the nominal value of gross domestic product has increased rapidly.