OCTOBER 11, 2017 – Government and private-sector debt in emerging markets as a percentage of gross domestic product has fallen this year, the first time since 2011, according to a report from JP Morgan released on Tuesday.
After five straight years of increases, the so-called debt overhang in emerging markets has steadied as a result of both increasing growth in the less-developed countries and smaller increases in borrowing. That should reduce the risk of financial instability, according to the report.
Overall, emerging markets debt-to-GDP level over the past year has declined to 116.5 percent of GDP, a 2.1-percentage-point decrease. Excluding China, emerging markets saw a reduction of debt to 77.9 percent of GDP.
JPMorgan analysts said the growth in private-sector credit remains 43 percent higher than it was in 2008, but that owes largely to borrowing in China, the world’s second largest economy.
Analysts Jonny Goulden, Luis Oganes and Anthony Wong said in the report that the recent findings appear to mark a “post-crisis phase for this Debt Overhang as it becomes less of a systemic risk for markets.”
They also noted that 87 percent of governmental debt is held by domestic borrowers, as is 93 percent of private-sector debt.
“This keeps the risk of an EM external debt crisis low, in our view,” the analysts wrote.