The increasing trend of using corporate debt for speculative financial gambles could make the global economy more vulnerable in the next downturn, the International Monetary Fund (IMF) has warned.

The corporate debt ratio in advanced economies has steadily increased since 2010, and now sits at the same level as the previous peak in 2008. Though some large economies such as Spain and the U.K. have significantly reduced debt levels, the U.S. has seen corporate debt grow consistently since 2011 to hit a record high at the end of 2018.

In a research blog published Tuesday, the IMF highlighted that the use of private debt to fund dividend payouts, share buybacks, or mergers and acquisitions could “amplify shocks” if companies default, or attempt to sharply reduce debt by cutting investment or workforces.

“Unlike before the global financial crisis, risks are not solely concentrated in the private sector but also in the public sector, partly reflecting the unresolved legacy of the global financial crisis,” the report from IMF Fiscal Affairs Department Deputy Division Chief Marialuz Moreno Badia and Senior Economist Paolo Dudine said.

As well as increasing vulnerability to shocks, the increasing private debt levels could necessitate a sharp and costly debt reduction process.

“But reducing debt in the private sector may also, in turn, be a burden for an already overindebted public sector if a decline in output leads to lower revenue or corporate defaults trigger losses and curb lending by banks,” Moreno Badia and Dudine added.

The IMF’s warning mirrors recent comments from European Central Bank (ECB) Vice-President Luis de Guindos, who cautioned that investment funds, insurance companies and other major institutions had increased risk-taking in order to counter the low interest environment, leaving them exposed to economic shocks which could spread through the financial system.

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Public debt at pre-crisis levels

The new update of the IMF’s Global Debt Database placed total global public and private debt at $188 trillion at the end of 2018, with the global average debt-to-GDP ratio edging up to 226%, and country-by-country data shows some advanced economies could be ill-prepared for the next downturn.

While most countries, aside from the U.S. and Japan, have sought to reduce some of the debt accumulated after the global financial crisis, public debt ratios are still higher than before 2008 in almost 90% of advanced economies, the report highlighted.

In a third of advanced economies, the public debt ratio is 30 percentage points higher than its pre-crisis level, while the average public debt ratio in emerging markets is now at levels comparable to the crises of the mid-1980s and 1990s.

“Public debt ratios are above 70 percent in almost a fifth of countries. Meanwhile, there has been a steady build-up of public debt in low-income developing countries as a whole, with two-fifths of them worldwide at high risk of, or in, debt distress,” the IMF report added.