Growing vulnerabilities

The IIF data showed the increase was partly driven by a “spectacular rise” in emerging markets, where total debt stood at $55 trillion at the end of 2016, or 215pc of total emerging market GDP.

Debt has risen from $16 trillion in 2006 and $7.4 trillion in 1996.

The body, which represents the world’s top financial institutions, said a wave of maturing debt this year presented a “growing refinancing risk”.

It estimates that more than $1.1 trillion of emerging market bonds and loans will mature this year, with dollar-denominated debt accounting for a fifth of all redemptions.

It said China faced around $40bn of dollar-denominated redemptions this year, while Russia faced redemptions of $20bn.

International bodies including the International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD) have warned that rising interest rates in the US could bring an end to an emerging market corporate debt binge as companies in these countries see their debt servicing costs rise in local currency terms.

“While risks associated with currency mismatches may not be as acute as during past emerging market debt crises, the overall emerging market debt burden – particularly as global interest rates head higher – is a growing source of concern,” the IIF said in a note.

The Bank of England’s Financial Policy Committee (FPC) said on Tuesday that credit in China continued to grow at a “rapid” pace.

Corporate credit in the world’s second largest economy has climbed to 166pc of nominal GDP.

The IMF at the end of last year warned of broader risks to the global economy.

While the global economy appears to be turning a corner, the Fund said there was a risk that low growth, high debt and weak banks could push the world in a dangerous direction.

It said the “sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery”.

Governments lead advanced economy debt rise

The increase in debt in advanced economies has been led by rising public sector debt, according to the IIF.

Outstanding government debt in the US and UK has more than doubled since 2006, data shows, while Japan and the eurozone have seen a 50pc increase.

By contrast, households and businesses in advanced economies embarked on a period of “substantial deleveraging” in the decade after the crisis, compared with growth of $72 trillion in the ten years to 2016.

Private debt as a share of GDP fell by almost 30 percentage points in the UK between 2008 and 2015, according to the IMF, representing the biggest reduction in the advanced world.

Emerging market debt boom

The “substantial rise” in emerging market debt over the past decade has been driven by the development of local currency bond markets.

Total local currency debt stood at $48.5 trillion in 2016, while foreign currency debt stood at $7.2 trillion.

The IIF said foreign currency debt was below the peak seen in the second quarter of 2014, though this drop was driven by Chinese companies repaying dollar-denominated debt, and a loan restructuring programme in Hungary.

It said Latin American countries had seen much sharper increases in foreign currency debt, including Argentina, Colombia and Mexico, as well as Turkey and South Africa.

Corporate debt burdens are also much higher. The IIF said increases had been “concentrated in non-financial corporates, where debt-to-GDP has risen from 68pc in 2006 to 100pc in 2016”, even though the pace of growth has slowed in recent quarters…..More Here