Charts of the Day: Emerging Market Debt: Up Up Up and Away!

With the world's zero bound standard PLUS NIRP for developed economies, ballooning debt should be a natural consequence to such policies.

Writes the Financial Times: (bold fonts added)

Levels of debt in emerging markets continue to rise and are becoming a source of “significant concern”, the Institute of International Finance warned on Wednesday.

Total government, household, financial sector and corporate debt in emerging markets rose $1.6tn last year to $62tn, or more than 210 per cent of gross domestic product, according to the IIF, which represents global banks and other financial institutions. It happened even as developed markets reduced their overall debt by an estimated $12tn last year, to about $175tn.

“Total debt in EMs is high and getting higher,” said Hung Tran, the IIF’s executive managing director. “This will inhibit the ability to borrow to support growth, and the need to delever in the future will be a strong headwind to future growth.”

Mr Tran said the IIF’s figures were consistent with those of the Bank for International Settlements, which said recently that dollar-denominated lending to EMs had peaked in the middle of last year and subsequently fallen for the first time since the global financial crisis.

The BIS, the central bank of central banks, warned of a vicious circle of deleveraging, financial market turmoil and a global economic downturn.

“Many non-financial corporations in emerging markets and especially in China have paid down their foreign currency debts so the BIS is correct,” said Mr Tran. “But they have increased their local currency debts by more than the amount they have paid down so net on net the stock of debt continues to increase everywhere, particularly in China.”

Companies in developed markets reduced their level of debt to GDP by 0.4 percentage points during 2015 to 87.4 per cent, the IIF’s figures show, while those in emerging markets added 6.7 points to reach 101.3 per cent of GDP. The IIF’s figures are for 19 emerging markets; in those countries taken together, corporate debt rose more than $1.9tn in 2015, to more than $25tn.

Surging debt on lower growth: have these not been ingredients which crisis are made of?