Global debt levels fell for the first time in two and a half years in the first quarter, but were affected by a decline in developed markets, the (IIF) said on Thursday.Debt levels of developing economies hit a new record。

Total global debt fell by $1.7 trillion to $289 trillion, with financial debt accounting for nearly half, while government debt continued to grow.

By contrast, debt levels in emerging markets rose by $600 billion to an all-time high of more than $86 trillion, despite a marked slowdown in the first three quarters. This is due to a slowdown in government debt growth in emerging countries, mainly due to fiscal constraints.

Emre Tiftik, director of sustainability research at the Institute of International Finance, said:

"the fiscal capacity of emerging markets is relatively weak, and non-financial companies and the financial sector have been the main drivers of debt accumulation because of the overall stability of government debt in emerging markets."

Despite the decline in global debt levels, debt ratios will continue to rise as economies in many parts of the world struggle to return to pre-epidemic levels.

At the global level, the debt-to-GDP ratio rose by just 1 percentage point in the first quarter of 2021, to just over 360 per cent, and is expected to decline slightly this year as global debt issuance is lower than before the outbreak and the expected economic recovery. Last year, the global debt-to-GDP ratio jumped by more than 36 percentage points.

In emerging market countries, the debt-to-GDP ratio has risen from 52 per cent before the outbreak to nearly 60 per cent. According to the Institute of International Finance, despite the recent easing of vulnerabilities, many economies are still feeling the pressure of continuing blockades and slow progress in vaccination.

"while the global financing situation remains strong, increased expenditure and lost income related to the outbreak have increased the debt servicing burden on many emerging market countries, including the Philippines, South Africa, India, Indonesia and Turkey."

Emerging markets are also under increasing pressure to accelerate their transition to a low-carbon economy, which could push up government borrowing costs if they fail to do so.

The IIF calculates: "it is estimated that with a 10 per cent increase in climate vulnerability, emerging market sovereign debt spreads will increase by an average of 100 basis points."