Global debt grew by $8.3 trillion in the first three months of 2023, prompting concerns over leverage in the financial system as the debt pile edges closer to record highs.
At almost $305 trillion, global debt is a shade under the $306 trillion recorded in the first quarter of 2022, the Institute of International Finance said in its latest Global Debt Monitor report.
The increase marks the second consecutive quarterly jump in global borrowing, following two quarters of sharp decline during rapid monetary policy tightening last year in countries around the world.
The rebound was primarily driven by non-financial corporates and the government sector, as “central banks respond to fragile market sentiment by slowing the pace of rate hikes”, IIF economists Emre Tiftik, Khadija Mahmood and Raymond Aycock said.
“Global debt is now $45 trillion higher than its pre-pandemic level and is expected to continue increasing rapidly,” they said.
Central banks around the world have eased the pace of increases in their benchmark policy rates that were raised to curb inflation.
The US Federal Reserve, which has been increasing its benchmark rates aggressively since March last year by as much as 75 basis points, raised it by only 25 basis points in May.
It may pause rate increases as it edges closer to their highest level since 2007, shortly before the start of the 2008 global financial crisis.
The rise in interest rates makes borrowing in US dollars more expensive for governments, corporations and financial institutions, as well as household borrowers.
However, the smaller increases and their slowing pace have encouraged borrowers to take advantage of the window and secure capital.
The IIF said the global debt pile in the first quarter of this year has grown as government borrowing needs remain elevated amid concerns over a potential credit crunch following the recent turmoil in the US and Swiss banking sectors.
A combination of factors, including ageing populations, rising healthcare costs and substantial climate finance gaps, continues to put pressure on government balance sheets.
Increased geopolitical tension is also expected to drive further increases in national defence spending over the medium term, potentially affecting the credit profile of both sovereign and corporate borrowers.
“If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer,” the Washington-based institute said.
While the global debt to gross domestic product ratio has stabilised near 335 per cent of GDP, nearly 75 per cent of emerging markets experienced a rise in their US dollar-denominated debt levels during the first quarter of 2023.
The biggest increases were seen in China, Mexico, Brazil, India and Turkey, propelling total emerging market debt to a high of more than $100 trillion, up from about $75 trillion in 2019.
The rate of increase was sharper in mature markets, driven by Japan, the US, France and the UK.
With US banks increasingly reporting tighter lending standards, small businesses could face credit crunch, while the rate of default could rise in highly indebted “zombie firms” across the board.
“We estimate that around 14 per cent of US companies can be considered zombies, with a substantial portion of these in the healthcare and information technology sectors,” IIF economists said.
The IIF expects private debt markets to gain prominence amid the credit crunch as non-bank financial institutions continue to strengthen their position on global credit intermediation.
“The so-called shadow banks now account for more than 14 per cent of financial markets, with the majority of growth stemming from a rapid expansion of US investment funds and private debt markets,” the IIF economists said.
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How to invest in gold
Investors can tap into the gold price by purchasing physical jewellery, coins and even gold bars, but these need to be stored safely and possibly insured.
A cheaper and more straightforward way to benefit from gold price growth is to buy an exchange-traded fund (ETF).
Most advisers suggest sticking to “physical” ETFs. These hold actual gold bullion, bars and coins in a vault on investors’ behalf. Others do not hold gold but use derivatives to track the price instead, adding an extra layer of risk. The two biggest physical gold ETFs are SPDR Gold Trust and iShares Gold Trust.
Another way to invest in gold’s success is to buy gold mining stocks, but Mr Gravier says this brings added risks and can be more volatile. “They have a serious downside potential should the price consolidate.”
Mr Kyprianou says gold and gold miners are two different asset classes. “One is a commodity and the other is a company stock, which means they behave differently.”
Mining companies are a business, susceptible to other market forces, such as worker availability, health and safety, strikes, debt levels, and so on. “These have nothing to do with gold at all. It means that some companies will survive, others won’t.”
By contrast, when gold is mined, it just sits in a vault. “It doesn’t even rust, which means it retains its value,” Mr Kyprianou says.
You may already have exposure to gold miners in your portfolio, say, through an international ETF or actively managed mutual fund.
You could spread this risk with an actively managed fund that invests in a spread of gold miners, with the best known being BlackRock Gold & General. It is up an incredible 55 per cent over the past year, and 240 per cent over five years. As always, past performance is no guide to the future.
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What is dialysis?
Dialysis is a way of cleaning your blood when your kidneys fail and can no longer do the job.
It gets rid of your body's wastes, extra salt and water, and helps to control your blood pressure. The main cause of kidney failure is diabetes and hypertension.
There are two kinds of dialysis — haemodialysis and peritoneal.
In haemodialysis, blood is pumped out of your body to an artificial kidney machine that filter your blood and returns it to your body by tubes.
In peritoneal dialysis, the inside lining of your own belly acts as a natural filter. Wastes are taken out by means of a cleansing fluid which is washed in and out of your belly in cycles.
It isn’t an option for everyone but if eligible, can be done at home by the patient or caregiver. This, as opposed to home haemodialysis, is covered by insurance in the UAE.
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How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
- Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
- Upload the training certificate from a centre accredited by the GCAA
- Submit their request
What are the regulations?
- Fly it within visual line of sight
- Never over populated areas
- Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
- Users must avoid flying over restricted areas listed on the UAE Drone app
- Only fly the drone during the day, and never at night
- Should have a live feed of the drone flight
- Drones must weigh 5 kg or less
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Copa del Rey
Barcelona v Real Madrid
Semi-final, first leg
Wednesday (midnight UAE)
Three ways to get a gratitude glow
By committing to at least one of these daily, you can bring more gratitude into your life, says Ong.
- During your morning skincare routine, name five things you are thankful for about yourself.
- As you finish your skincare routine, look yourself in the eye and speak an affirmation, such as: “I am grateful for every part of me, including my ability to take care of my skin.”
- In the evening, take some deep breaths, notice how your skin feels, and listen for what your skin is grateful for.
