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Dollar’s Surge Shrinks World Debt Pile for First Time Since 2018

·1 min read

(Bloomberg) -- The global mountain of debt in US dollar terms shrunk for the first time since 2018 as the greenback surged and major central banks boosted borrowing costs, according to the Institute of International Finance.

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Total debt decreased by about $5.5 trillion to $300 trillion in the second quarter, IIF data showed. While most of that drop occurred in developed economies, the US and Canada ended up seeing an uptick in debt levels. The decline was more limited in emerging markets, where the ratio of debt to gross domestic product climbed.

“While much of this is a valuation effect, a rapid slowdown in debt issuance has also contributed,” Emre Tiftik, director of sustainability research and his colleagues at IIF, wrote in a note Wednesday. “The rapid rise in borrowing costs and weak investor appetite have kept many issuers away from primary markets this year.”

Still, the world’s debt-to-GDP ratio rose slightly to 350%, a trend that IIF expects to continue at least through the end of the year amid inflation, growth concerns and tighter monetary policy.

The IIF warned that higher food prices are particularly harmful for emerging markets, where 16 of the 35 countries with a major food crisis are already in or at high risk of debt distress.

Read: IMF Plans Food-Shock Help as It Mulls Revamp of Global Role

The greenback has risen this year against all of its Group-of-10 currency peers, with the Bloomberg Dollar Spot Index up more than 11% in 2022 -- on track for its best annual performance on record.

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