Adequately designed fiscal measures can help lower the risks of record-high global debt toward global recovery and financial stability, said the International Monetary Fund (IMF) on Wednesday in a newly-released report.
"At 225 percent of world GDP, the global debt of the nonfinancial sector -- comprising the general government, households, and nonfinancial firms -- currently at an all-time high," said the Washington-based IMF in its Fiscal Monitor report.
The report said the global debt of the nonfinancial sector has reached 152 trillion U.S. dollars by 2015. About two-thirds, or 100 trillion dollars, are from the private sector and the rest from the public debt.
The private debt is high not only in advanced economies but also in a few important emerging market economies in which easier financial conditions have led to a sharp increase in nonfinancial corporate sector debt, according to the report.
"Excessive private debt is a major headwind against the global recovery and a risk to financial stability," said Vitor Gaspar, director of the IMF's Fiscal Affairs Department.
"The Fiscal Monitor shows that rapid increases in private debt often end up in financial crises. Financial recessions are longer and deeper than normal recessions," Gaspar said, adding public debt also matters.
"Entering a financial recession with a weak fiscal position results in even larger output losses. This is especially the case for emerging market economies which tend to cut government spending in times of crisis, reflecting tighter financing conditions," said Gaspar.
To reduce the risks caused by high debt to global growth and stability, Gaspar believed fiscal policy can play an important role.
"Targeted fiscal interventions in the form of government-sponsored programs to help restructure private debt and public support for financial sector restructuring can be very effective in reducing output losses associated with private sector deleveraging," said Gaspar.
"But in order to work, they need to be adequately designed and subject to strong governance principles," said Gaspar.
