LONDON: Global government debt is set to rise 9.5% this year to a record US$71.6 trillion (RM302 trillion), driven by the United States, Japan and China, asset management firm Janus Henderson said in a report yesterday.

       Governments across the world have ramped up borrowing since the Covid-19 pandemic erupted two years ago, as they tried to shield their economies from the fallout.

       That took global government debt to a record US$65.4 trillion (RM276 trillion) in 2021, compared to US$52.2 trillion (RM220 trillion) in January 2020, Janus Henderson said.

       China’s debt rose the fastest and by the most in cash terms, up a fifth or by US$650bil (RM2.74 trillion) last year, it added.

       Among large, developed economies, Germany saw the biggest increase in percentage terms, with its debt rising by 15%, almost twice the average global pace.

       According to Janus Henderson, government debt has tripled in the past two decades but a mitigating factor was low debt servicing costs.

       With the effective interest rate on all the world’s government debt slipping to 1.6% last year from 1.8% in 2020, debt servicing costs fell to US$1.01 trillion (RM4.2 trillion).

       And a strong global economic recovery meant the global debt-to-gross domestic product ratio improved to 80.7% in 2021 from 87.5% in 2020, the report added.

       Now though, debt costs may rise sharply, the asset management firm forecast, estimating the global interest burden to increase by almost 15% on a constant-currency basis to US$1.16 trillion (RM5 trillion) in 2022.

       “The biggest impact is set to be felt in the United Kingdom thanks to rising interest rates, the impact of higher inflation on the large amount of UK index-linked debt, and the cost of unwinding the quantitative easing (QE) programme,” the report said.

       “As interest rates rise, there is a significant fiscal cost associated with unwinding QE. Central banks will crystallise losses on their bond holdings which have to be paid for by taxpayers.”

       The Bank of England has raised interest rates three times since December to 0.75%. Financial markets price in rates hitting 2% by the end of this year.

       With inflation jumping and investors anticipating higher rates from major central banks, sovereign bond yields too have risen sharply.

       The United states 10-year Treasury yields, for instance, are up almost 100 basis points this year to 2.45%.

       The Janus Henderson report said global government bond markets delivered a minus 1.9% total return in 2021, only the fourth time in 35 years to see a decline. — Reuters