The economyLockdown Shock Could Trigger “Unexploded Debt Bomb”

Published 14 April 2020

An “unexploded bomb” of debt is being destabilised by the coronavirus shock, the global banking body has warned, as it predicted an “unprecedented surge” in borrowing ahead. Tom Rees writes in The Telegraph that more than $20 trillion (£16 trillion) of global bonds and loans due before the end of the year pose a “refinancing risk” with vulnerable emerging markets heavily exposed to the latest crunch, according to the Institute of International Finance (IIF). The global economy is starting a new crisis with corporate, household and government debt at levels never seen before after a decade of ultra-low borrowing costs and risky investor behavior. Signs of strains have already emerged in corporate credit, particularly the junk bond and leveraged loan markets, while government borrowing is set to enter uncharted territory. Rees notes that the world economy is entering a recession with $87 trillion more debt than at the onset of the financial crisis. The global debt to GDP ratio has risen by 40 percentage points over that period to an eye-watering 322pc and will hit 342pc this year, the IIF said. Unprecedented government support for economies and interest rates being slashed to new record lows are expected to drive debt even higher in the coming years.