IMF warns of interest rate risks as global debt hits $226 trillion

Global debt surged to $226 trillion last year, its biggest one-year jump since World War Two, and will be put at risk if global interest rates rise faster than expected and growth falters, the International Monetary Fund said on Wednesday.

Advanced economies and China accounted for 90% of the debt rise, enabled by low interest rates. Debt rose less in other developing countries, which were hampered by often higher borrowing costs and limited access to funding, the IMF said.

IMF Fiscal Affairs Director Vitor Gaspar and other officials said that higher interest rates will diminish the impact of increased fiscal spending, and cause debt sustainability concerns to intensify.

“The risks will be magnified if global interest rates rise faster than expected and growth falters,” the officials wrote.

“A significant tightening of financial conditions would heighten the pressure on the most highly indebted governments, households, and firms. If the public and private sectors are forced to deleverage simultaneously, growth prospects will suffer.”