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Data: Institute of International Finance; Chart: Danielle Alberti/Axios

A major issue that will complicate any potential recovery is the extreme level of debt corporations and governments around the world have built up, much of it predating the pandemic.

By the numbers: To dig themselves out of the hole COVID-19 created, governments and corporations have added significantly to their already heavy debt loads.

  • The Institute of International Finance reported last month that as of the third quarter this year global debt had reached 364% of the world's GDP, having climbed by 30 percentage points between Q1 and Q2 this year.
  • Global debt was less than 310% of global GDP as recently as 2014.

What they're saying: The wrong answer is to turn a blind eye to this," former Bank of India governor Raghuram Rajan said.

  • "We know from the experience in places like Japan after their bubble burst that the sooner you fix the problem the more you get back to strong, sustained growth."
  • "And if you don’t, the problem just gets bigger."

Yes, but: In addition to being an issue that governments have ignored over the past decade — and especially the past four years — it is virtually impossible to know the size of the problem because "it’s been disguised a lot by the extensive support that’s in place," Rajan added.

  • "But we will see the extent of corporate distress when we come out [of the pandemic]."

Why you'll hear about this again: "Many firms have used existing cash buffers to soften the drop in demand," a group of economists, academics and central bankers that includes former chair of the Council of Economic Advisers Jason Furman, former European Central Bank chair Mario Draghi, and People's Bank of China governor Yi Gang wrote in a report for the Group of 30 (G30).

  • "However, many studies have found that the strain of continued lockdowns will quickly exhaust cash buffers for many firms."
  • "A Bank for International Settlements (BIS) study estimated that if 2020 revenues fall by 25 percent and firms are not able to roll over debt, cash buffers and revenues will be exceeded by debt service and operating costs in more than half of the sampled corporates across 26 countries."

Editor's note: This article has been edited to state that global debt was less than 310% of global GDP as recently as 2014, rather than 210%.

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