Emerging debt swelled $1.6 t in 2015, poses risks: IIF

Reuters: Total debt in emerging markets grew by $1.6 trillion in 2015 to more than $62 trillion, the Institute of International Finance said last week, warning that higher indebtedness raised repayment risks and endangered future economic growth.

The Washington-based group, one of the most authoritative sources of data on investment flows to the developing world, noted that $730 billion of bonds issued by emerging markets governments and companies were due for repayment in 2016. Another $890 billion matures next year, a third of it in US dollars.

This debt-servicing hump is a result of a borrowing spree after the 2008 global financial crisis, Reuters has reported.

The IIF said in a report that as countries increasingly use money they raise to repay maturing debt, "high levels of indebtedness – andthe need for eventual deleveraging – willlikely constrain EM growth going forward".

The report noted year-to-date government bond and loan sales were almost 35 percent below the same period in 2015. "With a record level of upcoming redemptions through 2017, EM issuance has been subdued this year, with investors remaining uneasy about a potential rise in EM corporate default risk," it added.

The IIF contrasted developing countries' debt situation with advanced economies, where heavy deleveraging by governments as well as households brought down debt levels by $12 trillion last year to around $175 trillion.

That allows scope for more spending to boost recovery.

Emerging market indebtedness, on the other hand, is growing across all sectors. Non-financial corporate debt rose by over 6.5 percentage points in 2015 to more than 100% of GDP, surpassing mature markets' 87% average.

The IIF also noted that household debt rose more than $335 billion in 2015, surpassing $8 trillion, as consumers in many emerging markets continued to take advantage of monetary policy easing and low interest rates.

That took indebtedness close to 35% of GDP, up from 15-20% pre-crisis. The build-up was particularly pronounced in emerging Asia, where household debt-to-GDP ratios are over 40%, the report noted.

On the positive side, while emerging public sector debt rose over three percentage points in 2015 to more than 45% of GDP, this remains well below the 110% ratio in mature markets.

The increase last year was also concentrated entirely in local currency bonds, the outstanding volume of which swelled more than $2 trillion to some $22 trillion. Outstanding hard currency debt declined by $72 billion to $3.3 trillion.