immediate currency risks, but exposes these countries to the risk of shifts in global risk sentiment (Agur et al. 2018).

# 4.3 Corporate and household debt vulnerabilities

Since 2007, nonfinancial corporate debt has increased on average by 10.3 percentage points of GDP to 48.0 percent in 2018 among EMDEs other than China, often fueled by low global interest rates and compressed risk premiums (Figure 12).<sup>14</sup> Corporate debt, as a ratio to GDP, has risen above 2007 levels in 79 percent of EMDEs and, in one-third of them, by more than 10 percentage points of GDP (Ohnsorge and Yu 2016; Borensztein and Ye 2018).<sup>15</sup> The most rapid increases in nonfinancial corporate debt have occurred in some of the largest EMDEs, particularly China. Outside China, about half of the buildup in EMDE corporate debt since 2010 has been in foreign currency (World Bank 2018c).

Household debt in the average EMDE has also increased by 5 percentage points of GDP since 2007, reaching 25 percent of GDP in 2018. In some EMDEs, household debt has risen by more than 10 percentage points of GDP. The largest increases are in China and Thailand, where household debt swelled by 32 and 24 percentage points of GDP, respectively.

# 4.4 Vulnerabilities in LICs

In LICs also, government debt and current account deficits have grown since 2007. Government debt in the median LIC was 47 percent of GDP in 2018, 10 percentage points higher than in 2007, although significantly lower than before the Multilateral Debt Relief Initiative (MDRI) and Heavily Indebted Poor Countries Initiative (HIPC).<sup>16</sup> The government debt-to-GDP ratio reached a low in 2013 and has since increased by 16 percentage points; it has risen in 90 percent of LICs and, in one-third of them, by more than 20 percentage points. The composition of LIC debt has shifted toward nontraditional sources of funding, including international capital markets and non-Paris Club creditors (World Bank 2019b).<sup>17</sup> Debt has been increasingly financed by non-concessional and private sources, increasing LICs’ vulnerability to financial market disruptions. As a result, interest payments are absorbing an increasing share of government revenues. Separately, the average LIC current account deficit widened to 8.1 percent of GDP in 2018, from 3.1 percent of GDP in 2007.

> 14 Based on data for 16 EMDEs that have 2019Q1 data: Argentina, Brazil, Chile, China, Colombia, Hungary, India, Indonesia, Malaysia, Mexico, Poland, Russia, Saudi Arabia, South Africa, Thailand, and Turkey.

> 15 Based on a larger sample of 48 EMDEs with data for 2017 and 2016.

> 16 Average LIC debt was 51 percent of GDP in 2018, lower than the 59 percent of GDP in 2007. However, the mean is driven by a minority of LICs who have seen significant declines in debt as part of the Enhanced HIPC initiative of 2009/10.

> 17 By August 2019, 12 out 28 LICs were regarded as being in debt distress, or at high risk thereof, under the IMF-World Bank debt sustainability framework (two more than at end-2018). A country is considered to be in debt distress if it is experiencing difficulties in servicing its debt, as evidenced, for example, by the existence of arrears or ongoing or impending debt restructuring, or if there are indications that a future debt distress event is probable.