Global Debt Reaches Record High

NEW YORK (Reuters) – Global debt hit a record high of $312 trillion at the end of the second quarter, driven by borrowing in the United States and China, while a key debt ratio in emerging markets also scaled a fresh peak, data from a banking trade group showed.

The Institute of International Finance (IIF), a financial services trade group, reported on Wednesday that global debt rose by $2.1 trillion in the first half to $312 trillion – a new high point after previous data was revised lower.

The IIF warned of the trend of rising government borrowing in its latest Global Debt Monitor report, forecasting that global government borrowing would rise from its current level of $92 trillion to $145 trillion by 2030 and exceed $440 trillion by 2050.

“With the Fed’s new easing cycle expected to accelerate the pace of global debt buildup, a significant concern is the apparent lack of political will to address rising sovereign debt levels in both mature and emerging market economies,” the IIF report stated.

A significant portion of the borrowing was attributed to the energy transition amid climate change challenges, which was projected to account for over a third of the anticipated rise by 2050.

“This poses significant challenges, as many governments are already allocating a growing share of their revenue to interest expenses,” the report added.

BIG COUNTRY, BIG BORROWER

The $2.1 trillion increase this year through June contrasts with $8.4 trillion in the first half of 2023, according to IIF data.

In addition to China and the U.S., India, Russia, and Sweden also increased their debt levels, while other European countries and Japan experienced notable declines, the report indicated.

The global debt-to-GDP ratio – an indicator of the ability to repay debt by comparing it to economic output – has stabilized around 327%-328%, with output numbers partly buoyed by above-target inflation in major economies.

In developed markets, this ratio reached its lowest level since 2018, driven by declines in household and non-financial corporate borrowing.

Conversely, emerging markets saw their debt ratio hit a new high of over 245% of output, more than 25 percentage points higher than before the COVID-related lockdowns.