Show caption Demonstrators surround the European Central Bank in Frankfurt to protest against austerity measures to cut debt. Photograph: AP Global economy Governments must heed IMF warning of $152tn global debt timebomb Central banks are bearing too much of the burden for sustaining growth, the IMF says. Policy chiefs must act before it’s too late Larry Elliott in Washington Wed 5 Oct 2016 09.45 EDT Share on Facebook

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First it was the august Bank for International Settlements. Now it is the International Monetary Fund sending out a warning about global debt.

For the first time, the IMF has had a comprehensive look at indebtedness and the numbers are huge. Global debt is estimated at $152tn, or about 225% of annual global output. Two-thirds of the debt – approximately $100tn is held by the private sector.

The IMF hopes the debt data published in its half-yearly fiscal report will chivvy governments into action before it is too late.

The first thing to note is that there has been no overall debt deleveraging since the financial crisis and recession of 2007-09, despite the fact that the most severe downturn of the post-war era was the consequence of too much reckless borrowing. Indeed, the IMF notes that debt as a proportion of GDP has never been higher.

Debt levels have been high before, such as at the end of the second world war. But in the three decades after 1945, strong growth and moderate inflation meant global output increased much more quickly than indebtedness, and the problem gradually melted away. Since 2009, growth and inflation have been low by historic standards.

Central banks have responded to weak growth and the threat of deflation by keeping interest rates low, but this approach has proved to be a double-edged sword. It has helped by making it cheaper to service debt repayments but has also increased demand for borrowing.

As a result, many borrowers would quickly find themselves in trouble were central banks to start raising interest rates, with a return to the levels seen before the financial crisis unthinkable.

Like the Bank for International Settlements, the IMF thinks central banks are shouldering too much of the burden for sustaining global growth, but any normalisation of interest rates would need to be handled sensitively.

The IMF says fiscal policy – the power governments have over tax and spending – could help. It suggests there should be tax breaks to persuade creditors to lengthen repayment periods or measures to remove debt from balance sheets.

Fiscal action would, of course, increase government debt in the short term, but the IMF believes this is better than the alternative. That is a situation in which weak nominal growth and low inflation locks the global economy into the sort of debt-deflation spiral envisaged by the US economist Irving Fisher during the depths of the great depression in the 1930s.