Key points
- A British asset manager, Janus Henderson, forecasted a 9.5 percent increase in global government debt in its second annual Sovereign Debt Index, released on Wednesday.
- According to research from S&P Global Ratings, new sovereign borrowing will likely exceed $10.4 trillion in 2022, nearly a third higher than the average before the Covid-19 outbreak.
According to a new analysis, global sovereign debt is anticipated to rise by 9.5 percent to a record $71.6 trillion in 2022, while new borrowing is expected to stay high.
According to Janus Henderson’s second annual Sovereign Debt Index, the United States, Japan, and China are likely to lead a 9.5 percent growth in global government debt. The vast majority of countries are expected to boost borrowing.
Global government debt increased 7.8% to $65.4 trillion in 2021, as every country evaluated increased borrowing, while debt payment expenses fell to a historic low of $1.01 trillion, representing an effective interest rate of just 1.6 percent, according to the research.
On the other hand, debt servicing expenses are expected to rise dramatically in 2022, rising by about 14.5 percent to $1.16 trillion on a constant-currency basis.
The United Kingdom will be hit hardest by rising interest rates, rising inflation on large amounts of U.K. index-linked debt, and the expenses of unwinding the Bank of England’s quantitative easing programme.
“The pandemic has had a drastic influence on government borrowing, and the consequences are expected to last for some time.” According to Bethany Payne, portfolio manager for global bonds at Janus Henderson, “the tragedy unfolding in Ukraine is likely to put pressure on Western countries to borrow more to support higher defence spending.”
Germany has already pledged to increase defence expenditure to more than 2% of GDP, marking a significant policy shift in the aftermath of Russia’s invasion of Ukraine and contributing 100 billion euros ($110 billion) to a fund for its armed forces.
According to the S&P Global Ratings’ latest global borrowing report, new sovereign borrowing will likely exceed $10.4 trillion in 2022, over a third more than the average before the Covid-19 outbreak.
“We expect borrowing to remain elevated due to high debt-rollover demands and fiscal policy adjustment issues provided by the epidemic, high inflation, and fractured social and political landscapes,” said Karen Vartapetov of S&P Global Ratings.
This adds to the woes of sovereigns who have already struggled to rekindle growth and reduce their dependence on foreign currency finance and whose interest costs are already high.
Borrowing rates are forecast to rise in advanced economies. Still, they will likely remain at a level that will give governments time to consolidate their budgets and focus on growth-stimulating measures, according to S&P.
