The average government debt level in Asia-Pacific is at an 18-year high, with most developing economies in the region trying to stabilise it at current levels by 2027, according to recent research.
According to a survey by the UN Economic and Social Commission for Asia and the Pacific (UN Escap), the number of countries rated at high risk of debt distress in Asia-Pacific has been surging in line with rising public debt and debt servicing costs.
In 2019, the average government debt-to-GDP ratio in developing countries in the region was at an 11-year high of 40.6%.
The figure then increased to 49.5% of GDP in 2021, driven by large stimulus packages and falling government revenues as a result of the pandemic, with two-thirds of regional economies reaching the highest level of such debt since 2008.
"Several economies are still struggling with double or triple the size of their recent average external debt servicing, as high as 10% of GDP in 2022," noted the report.
"Growing post-pandemic public debt, together with weaker economic growth prospects and higher interest rates, have considerably increased the risk of public debt distress across the region," UN secretary-general Antonio Guterres said in the report.
Based on the joint World Bank-International Monetary Fund (IMF) Debt Sustainability Framework for Low-income Countries, or equivalent credit rating scores, 19 countries in the region are rated at high risk of debt distress.
"According to the latest IMF pro- jections, most developing economies in the region are expected to stabilise their general government gross debt ratios at current levels by 2027, except China and a few Pacific island developing states," the report added.
Five countries had general government gross debt of more than 100% of GDP in 2021, with Japan ranking top at 262%, followed by Singapore (160%), Bhutan (132%), the Maldives (125%) and Sri Lanka (103%).
Meanwhile, general government gross debt in Fiji, India, Laos and Mongolia is also significantly high at more than 80% of GDP.
Primary deficit is the key factor contributing to higher public debt in the region, while currency depreciation also accounts for a large proportion of increases in public debt in several countries.
The report also found that half of developing Asia-Pacific economies rely heavily on external debts, which is mostly denominated in US dollars, followed by the euro and yen.
The dollar-denominated debt is larger than 20% of GDP in 12 economies.
"In economies where the external public and publicly guaranteed debt-to-GDP ratio is more than 10%, the share of dollar-denominated debt is larger than 70% in about two thirds of the economies," said the report.
On the other hand, China has gained greater influence as a non-traditional bilateral creditor in the region, with several small island states and developing landlocked countries seeing the sharpest increases in Chinese debt, predominantly in infrastructure development through the Belt and Road Initiative (BRI).
In 2021, China's lending to the region surged 11 times to US$71 billion from $6 billion in 2008.
Among countries that have China as a creditor are Cambodia, Kyrgyzstan, Laos, the Maldives, Pakistan, Samoa, Tajikistan, Tonga and Vanuatu.
China also accounts for more than 20% of total external public debt in Fiji, Mongolia, Myanmar, Papua New Guinea and Sri Lanka.
According to UN Escap, external debt service payments on public and publicly guaranteed debts are expected to increase in most countries in the coming years, putting at risk public debt sustainability of some economies.
The average external public and publicly guaranteed debt-service-to-GDP ratio in the region is expected to have been as high as 2.8% in 2022, compared to 2.1% in 2019 and 1.3% in 2008.
"Countries with high debt distress levels may need preemptive, swift and adequate sovereign debt restructuring, while efforts towards common international debt resolution mechanisms and restructuring frameworks also need to be accelerated," noted the report.
"Recovery and development depend on equitably and sustainably managing debt, massive investments in the Sustainable Development Goals, and transforming the international financial system to make it fairer and more resilient," said Mr Guterres.