Global debt substantially increased after the 2008-09 global financial crisis (GFC), amounting to more than three times world GDP in 2018. Nonfinancial corporate debt was a main contributor to this expansion.
Practitioners and academics have increasingly raised concerns that the larger firm indebtedness could become a threat to the global economy and trigger a financial crisis comparable to the GFC. The COVID-19 pandemic has only heightened these fears. As lockdowns and border closures have caused a plunge in global economic activity, how firms manage their debt burden has become a central topic in economic discussions. High corporate debt could become the Achilles heel in the global economy that exacerbates the downturn and hampers economic recovery.
In a new paper, we show that the rise in corporate debt was concentrated in emerging economies. Between 2008 and 2018, nonfinancial corporate debt rose from 56 to 96 percent of GDP in these economies, whereas it grew at the same rate as GDP in developed ones (Figure 1). This rise in corporate debt was mainly conducted through bond markets and it has been largely attributed to accommodative monetary policies in developed economies.
Figure 1: Corporate Debt Outstanding
Source : blogs.worldbank.org