Interest Rate Normalization in a World with High Indebtedness

Abstract

Global debt has grown to record levels. Government debt, corporate debt and household debt around the world rose to a high of 350% of world gross domestic product in 2022. The systemic risk that has built up during the extended period of low interest rates threatens to materialize now as rates rise worldwide. For countries in which external liabilities are high, debt service costs will increase, and refinancing may become prohibitively expensive. External liabilities and their term structures provide insight into which emerging and developing countries may be most vulnerable in the next months.