A record surge in private debt triggered by the Covid-19 pandemic could slow the global economic recovery, with the biggest drag on future expansion in countries where low-income households and vulnerable firms are highly indebted. The recent spike in debt levels could slow economic recovery by a cumulative 0.9 per cent of gross domestic product in advanced economies and 1.3 per cent in emerging markets on average over the next three years, the International Monetary Fund said on Monday. “The recent surge in indebtedness of households and firms poses risks to the pace of recovery,” the Washington-based lender said in a report. “Yet this risk is not equally distributed. Careful, real-time monitoring of the balance sheets of low-income households and vulnerable firms is key to calibrating the unwinding of support measures. This could prevent sudden distress when financial conditions tighten.” Governments worldwide have provided economic stimulus packages to help individuals and businesses ride out the Covid-19 pandemic. These have helped to provide liquidity for affected individuals and businesses through credit guarantees, concessional lending and extensions on interest payments. While these policies helped prop balance sheets, they also led to a spike in private debt, extending a steady increase in leverage since the global financial crisis of 2008. Global private debt surged by 13 percent of the world’s GDP in 2020 — faster than the rise seen during the global financial crisis and almost as fast as public debt, the IMF said. The impact of the pandemic on households’ and firms’ balance sheets has been unequal across and within countries, depending on policy responses and the types of sectors in those economies, the IMF added. High-contact-services such as entertainment shrank as people stayed at home, but production and exports of computers, software and other goods expanded as consumers spent more on appliances. For example, the situation of workers in tourism services, restaurants, hospitality and entertainment has in many cases “remained precarious” two years after the start of the pandemic.