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Government debt issuance soars to a record $2.6 trillion in April

Debt and pandemic: a perfect storm
posted onMay 13, 2020
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Governments around the world have issue more debt than ever before in April,  following the Covid-19 outbreak. The Institute of International Finance's Global Debt Monitor which tracks indebtedness by sector across key mature and emerging markets, found that worldwide general debt issuance (bonds and loans) hit a record high of $2.6 trillion in April, up from the previous record issuance of $2.1 trillion in March. 

The U.S. government was found to have accounted for $1.4 trillion of total global general debt issuance in April, and $1.2 trillion in March. The world’s largest economy has committed to the largest rescue package of any country by far. 

In times of pandemic, governments and central banks do whatever it takes, applying a cocktail of fiscal and monetary stimulus tools. But Covid-19 and its economic impact will increase fiscal deficits and public debt rations across countries given higher spending and plunging revenues, the International Monetary Fund  warned in a report published April 15. 

At the time, governments had taken fiscal actions amounting to about $8 trillion to contain the coronavirus pandemic and its damage to the economy, with G20 countries taking the lead.

Debt

Around 187 countries or territories imposed restrictions on the daily lives of billions of people in an effort to try to slow the spread of the virus. Those measures have severely affected consumer spending, industrial output, investment, trade, capital flows and supply chains. Major industries, especially airlines and other travel-related sectors, are on the brink of bankruptcy.  

The pandemic and the associated Great Lockdown led to increases in debt and deficits beyond those recorded in the global financial crisis, the Washington-based institution said. As the pandemic abates and the economy recovers in 2021, public debt ratios are expected to stabilise at new—higher—levels. 

“In a nutshell, policymakers should do whatever it takes but make sure to keep the receipts” IMF said in its Fiscal Monitor report.

Since the start of the pandemic, economists and finance experts are warning that countries with “high” or “distressed” public debt levels are at risk of severe economic shocks.

Secretary-General of the Organisation for Economic Co-operation and Development (OECD) Angel Gurria told the Financial Times Wednesday (May 13) that additional debt being taken on by governments and companies for managing the coronavirus crisis will "come back to haunt us."

Gurria told the London-based newspaper "we were already carrying a lot of debt and now we are adding more," noting that many countries’ recovery will be much slower than expected."

"I am not convinced that we are going to have a V-shaped recovery. I think it will be more like a U. The key thing is to shorten the lower part of the U . . . When you are thinking about the recovery, we don’t know whether it is going to be 2021 or 2022," Gurria added.

The Covid-19 outbreak has pushed the world to the brink of a recession more severe than the 2008 financial crisis. By early April, more than ninety countries had asked IMF for a bailout. The depth and duration of the downturn will depend on many factors. Analysts expect the damage to be far worse than most anticipate.