A WORLD BANK (WB) Group study found that total debt in emerging and developing economies (EMDEs), which includes the Philippines, hit an eight-year high last year, increasing at its fastest pace in nearly five decades.
According to World Bank’s Global Waves of Debt report, EMDEs had $55 trillion worth of debt, equivalent to 168% of their gross domestic product (GDP) in 2018, rising by 54 percentage points of GDP since 2010, the year when the debt buildup is deemed to have started.
“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 policy makers — 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.
The bank said the rise in debt, at a rate of seven percentage points annually on average, was almost three times faster than the increase recorded during the Latin American 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 bank said.
Despite record-low global interest rates, strong policy frameworks and strengthened international safety nets, it said “the latest wave of debt accumulation could follow the historical pattern and result in financial crises,” as the EMDEs continue to face a “wide range of risks” around the world.
However, the bank noted that the risks of debt accumulation could be mitigated or minimized if it is “well-spent to finance truly output-enhancing purposes and it is resilient to economic and financial market disruptions.”
It also proposed that policy makers should develop schemes that can manage debt costs and benefits while promoting greater debt transparency. — Beatrice M. Laforga
