Posthaste: Canada is leading the 'debt tsunami' now sweeping the world

In a world awash with debt, Canada is now a global leader.

A new report by the Institute of International Finance reveals that Canada saw the biggest jump in non-financial sector debt this year, beating Japan, the U.S. and the U.K.

Overall, global debt has soared by over $15 trillion between January and September of this year, hitting a new record of more than $272 trillion.

“With little sign of a slowdown in debt issuance, we estimate that global debt will smash through records to hit $277 trillion by the end of the year,” said the IIF, a global body of 400 banks and financial institutions.

Canada, Japan and the U.S. saw the biggest increases in debt-to-GDP ratios ranging from more than 75 percentage points in Canada to 45 percentage points in the U.S.

Understandably amid a pandemic, government debt is the biggest driver, climbing the most in Canada, Japan, the U.S. the U.K. and Spain. But Canada also showed the largest increases in household and non-financial corporate debt.

Interestingly, Ireland was the only country in the study to see its total debt ratio fall.

Debt in developed markets topped 432% of GDP in the third quarter, up by more than 50 percentage points this year. The U.S. accounted for nearly half of the rise, with total debt set to hit $80 trillion in 2020, up from $71 trillion in 2019.

“There is significant uncertainty about how the global economy can deleverage in the future without significant adverse implications for economic activity,” the IIF warns.

Nor is the COVID-19 pandemic all to blame.

Though $15 trillion has been added to the debt mountain during the pandemic, the pace at which the world has been piling it on over the past four years is unprecedented, said the IIF. Since 2016 global debt has grown by $52 trillion, far more than the $6 trillion added the four years before that and in other earlier periods.

Emerging market debt, which has topped $76 trillion and is nearing 250% of GDP, is particularly worrying.

Lower borrowing costs have eased the burden, but the IIF warns that declining revenues in emerging market governments have made debt service costs “much more onerous” despite this. By the end of next year, about $7 trillion of emerging market debt will come due, about 15% of it in U.S. dollars.

While austerity was the theme in the 2010s, a reflationary fiscal response in the next decade could continue to feed this debt fest.

“If the global debt pile continues to grow at the average pace of the last 15 years, our back-of-the-envelope estimates suggest that global debt could exceed $360 trillion by 2030 — over $85 trillion higher than current levels.”