Global debt and economic growth nexus: opportunities and challenges in economies

It is important to note that debt improves welfare and enhances growth when moderated and managed better. It provides resources that is not available to complement developing economies’ development objectives. However, excessive and inefficient use of debt can be damaging to any economy, making repayments difficult, consequently unsustainable debt. Global debt across economies – developed, emerging and developing are increasing with resultant adverse implications to economies around the world. The global public and private debt have reached an all-time high of $247 trillion in July, 2018, the equivalent of 225 percent of GDP in 2017. On average, the world’s debt now exceeds $86,000 in per capita terms, which is more than 2½ times the average income per-capita. The domestic debt level remains highly elevated, accounting for 2/3 of total output in 2018. In addition, the rate of increase of domestic debt outstrips the growth rate of Gross Domestic Product in many developing countries. Using a new dataset on debt levels in 20 OECD, emerging and developing countries from 1980 to 2010, we examine the impact of debt on economic growth. Using variations across countries and over time, we examined the impact of the movement in debt on growth. The result shows that countries that manage to keep debt levels low and invest in productive capital infrastructure tend to have positive effect on growth whilst those with excessive and poorly managed debts mainly on consumption and transfers had negative relationship between debt and growth. Across countries, economies have been able to maintain levels below the threshold while some countries failed to achieve sustainable debt management, hence resulting into debt unsustainability with its adverse consequences.