Total global government debt is now nearly double pre-crisis levels, according to a report published Wednesday from New York-based Fitch Ratings.
Global government debt finished 2018 at US$66 trillion, the report says, which is nearly double its 2007 level, and amounts to 80% of global GDP.
“Government debt levels are high, leaving many countries poorly positioned for financial tightening as global interest rates begin to move higher,” says James McCormack, global head of sovereign ratings at Fitch, in a statement.
Much of the recent growth in government debt is coming in emerging markets, the report says, as EM debt has risen from US$10 trillion in 2012 to US$15 trillion in 2018. In contrast, developed market debt has been fairly stable over that period.
The vast majority of global government debt, 93%, is rated investment grade, the report says. However, there has been a “steady deterioration in the credit quality of government debt in recent years,” it says.
In developed markets, the average rating of outstanding government debt was just under ‘AA’ at the end of 2018, which is down one notch since 2011. In emerging markets (excluding China), the average rating at the end of the year was slightly below ‘BB+’, which is its lowest level since 2005.
“In 2018 there were more upgrades than downgrades but, based on where we have negative rating outlooks, we believe 2019 looks less favourable, especially for the Latin America and Middle East and Africa regions,” adds McCormack.
“Common themes that have driven sovereign ratings in the last few years will dominate again in 2019, including tightening sovereign financing conditions, commodity price fluctuations and political and geopolitical developments. Slowing economic growth in some countries may bring fiscal concerns back to the fore, particularly given the high starting positions with respect to government debt,” he says.