The IMF sounds a warning on Australia's fast growing debt

Photo: Getty Images/Scott Olson

The IMF has, for the first time, put a number on the size of debt covering the world, a major headwind against growth and a key factor which could lead to another financial crisis.

Global debt is at a record high of $US152 trillion or 225% of global GDP.

About two-thirds of that are liabilities by non-financial firms and household private debt. The rest is public debt or that held by governments.

Australia is singled out by the IMF in its latest Fiscal Monitor report as one of a handful of developed countries where debt continues to rise.

“After the start of the global financial crisis, public debt in advanced economies rose rapidly, while progress in private sector deleveraging was mixed,” the IMF says.

On average, private debt in advanced economies reached a turning point in 2012, with the largest reductions in those countries that entered the crisis with high debt levels.

“In some cases, however, private debt has continued to accumulate at a fast pace—notably, Australia, Canada, and Singapore,” the IMF says.

Source: IMF

The IMF says there’s still a gap between the size of household debt and the value of assets held.

Excessive debt levels are associated with lower growth even in the absence of a crisis.

“The reason for this is that highly indebted borrowers will sooner or later decrease their consumption and investment as they are unable to service their debt and can no longer borrow,” the IMF says.

Vitor Gaspar, a director at the IMF, says high and rapidly increasing private debt often leads to financial crisis.

“Financial recessions are longer and deeper than normal recessions,” he told a media briefing. “Weak initial financial positions make financial recessions even worse.”

Australia’s debt-to-GDP hit 254% in the first quarter, taking the increase in the ratio since 2010 to 50%, according to analysis by the UBS Australia economics team.

The federal budget deficit hit $39.6 billion for the year to June.

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