Global Debt Reaches Record Levels

By Libby George

LONDON (Reuters) – The world's debt stock surged by over $12 trillion in the first three quarters of 2024, reaching nearly $323 trillion. This increase is attributed to falling borrowing costs and a rising risk appetite, per a report by the Institute of International Finance (IIF).

Large government budget deficits indicate that sovereign debt could rise by a third by 2028, potentially reaching $130 trillion, which increases repayment risks globally.

The IIF's report warns that rising trade tensions and supply-chain disruptions threaten global economic growth, increasing the chances of boom-bust cycles in sovereign debt markets as inflationary pressures arise and public finances tighten. This could exacerbate fiscal strains and complicate debt management due to increasing interest costs.

This report arrives as the world anticipates Donald Trump's potential second term in the White House, amid his threats of imposing trade tariffs on Europe, Mexico, Canada, and China. Many are preemptively issuing debt before he resumes office in January, likely leading to unpredictable markets.

The debt spike in Q3 2024 was the third-largest quarterly increase on record, following similar surges during the COVID-19 pandemic. Growth, especially in the United States, has allowed debt-to-GDP ratios to dip to around 326%, significantly lower than post-pandemic peaks.

Emerging market debt approaches a historic $105 trillion, equating to 245% of GDP. Debt service costs are rising globally, particularly in advanced economies, posing additional challenges.

Meeting global emissions reduction targets could add an extra $38 trillion in debt by 2028. With substantial amortizations due in 2025 and 2026, emerging markets could become vulnerable to sudden shifts in investor sentiment, highlighting the risk of liquidity crises.