For wholesale investors in Australia

Sovereign debt levels hit new records in 2021

Bethany Payne, CFA

Bethany Payne, CFA

Portfolio Manager


8 Apr 2022

Key takeaways:

The second edition of the Janus Henderson Sovereign Debt Index, an annual long-term study into trends in government indebtedness around the world, shows that global government debt jumped to US$65.4 trillion in 2021 as every country we examined increased borrowing. Global Bonds Portfolio Manager Bethany Payne discusses the study’s findings and our outlook for 2022.

Key Takeaways

  • Since the pandemic began, global sovereign debt has soared by over a quarter, up from US$52.2 trillion in January 2020 to today’s record of US$65.4 trillion.
  • Despite the surging level of borrowing, debt servicing costs fell to a record low of US$1.01 trillion in 2021, an effective interest rate of just 1.6%.
  • We predict government debt will rise 9.5% in 2022, with the US, Japan and China accounting for most of that increase.
View Transcript Expand

Bethany Payne: We’ve just launched the second edition of our Sovereign Debt Index. Global government debt rose to US$65.4 trillion in 2021, an increase of 7.8% since the pandemic began. Global sovereign debt has soared by over a quarter and has tripled in two decades.

China’s debts rose the fastest and by the most in cash terms, up by a fifth, or US$650 billion. Among large, developed economies, Germany saw the biggest increase in percentage. The country’s borrowings rose by one-seventh, almost twice the pace of the global average. US government borrowing has also soared to US$22.3 trillion, up US$1.3 trillion year on year. US government debt is now a third larger than its pre-pandemic level, compared to an increase of just over a fifth for the rest of the world. Meanwhile, the Mexican government’s conservative fiscal approach to the pandemic saw it increase its debts by only 13.8% between 2019 and 2021, which is the lowest increase anywhere in emerging markets.

Despite the surging level of borrowing, governments still enjoyed extremely low interest bills in 2021. Last year, the effective interest rate on all debt was just 1.6%, down from 1.8% in 2020. The cost to European nation’s taxpayers of servicing that debt fell to just US$186 billion, its lowest in at least 25 years.

Japan’s debt servicing costs remain extremely low at US$23 billion in 2021. They’re similar to Spain’s, despite borrowing levels seven times greater. But now accelerating inflation has pushed up market interest rates, and this will raise the cost of servicing the COVID-19 debt burden.

Inflation-linked bonds make up a relatively large share of the UK’s debt mix, worth around a quarter of the total outstanding. The UK is spending more servicing its inflation-linked bonds than all other developed economies.

So, what can we expect from 2022? Well, going forward we predict government debt will rise 9.5% in 2022, with the US, Japan and China accounting for most of that increase. And the global government interest bill will rise also in 2022, up by 14.5% on a constant currency basis.

For more details and to read our full report, please visit our website.

 

Unless otherwise stated, all data is sourced by Janus Henderson Investors as of 31 December 2021.

This information is issued by Janus Henderson Investors (Australia) Institutional Funds Management Limited (AFSL 444266, ABN 16 165 119 531). The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

 

Whilst Janus Henderson Investors (Australia) Institutional Funds Management Limited believe that the information is correct at the date of this document, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson Investors (Australia) Institutional Funds Management Limited to any end users for any action taken on the basis of this information. All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson Investors (Australia) Institutional Funds Management Limited is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect.

Bethany Payne, CFA

Bethany Payne, CFA

Portfolio Manager


8 Apr 2022