Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Global debt reached an unprecedented $337.7 trillion by the end of the second quarter, according to a recent report by the Institute of International Finance (IIF). This record surge, which saw global debt increase by over $21 trillion in the first half of the year, was primarily driven by easing global financial conditions, a softer U.S. dollar, and a more accommodative stance from major central banks worldwide. China, alongside the United States, France, Germany, Britain, and Japan, was identified as a key contributor to this rise in debt levels.
Global Debt Accumulation and Drivers
The significant accumulation of global debt reflects a confluence of factors. A weakening U.S. dollar since the start of the year (down 9.75%) contributed to the higher dollar-denominated value of non-U.S. debt. Additionally, major central banks’ policies, aimed at supporting economic recovery, facilitated increased borrowing across various sectors and countries.
The increase in the first half of 2023 is comparable to the substantial surge observed in the second half of 2020, highlighting a sustained trend of expanded credit and liquidity in the global financial system.
Country-Specific Debt Increases
In absolute U.S. dollar terms, several major economies recorded the largest increases in their debt levels. China, a significant player in the global economy, was prominently featured among these nations, alongside France, the United States, Germany, Britain, and Japan. These increases reflect varying national economic strategies, fiscal responses to global challenges, and the impact of currency valuations.
When examining debt-to-GDP ratios, which measure a country’s debt relative to its economic output, Canada, China, Saudi Arabia, and Poland experienced the sharpest increases. Conversely, countries like Ireland, Japan, and Norway saw their debt-to-GDP ratios decline. Overall, the global debt-to-output ratio continued its slow downward trend, standing just above 324%.
Emerging Markets Under Pressure
Emerging markets are facing particularly acute debt challenges. Their collective debt-to-output ratio hit a new record of 242.4%, indicating a growing burden relative to their economic capacity. Total debt in these economies rose by $3.4 trillion in the second quarter alone, underscoring the rapid pace of accumulation.
A significant concern for emerging markets is the upcoming wave of redemptions. These nations face a record high of nearly $3.2 trillion in bond and loan redemptions in the remainder of 2025, posing a substantial refinancing challenge.
Future Fiscal Strains and Risks
Looking ahead, the IIF report projects that escalating geopolitical tensions and rising military spending will intensify strains on government balance sheets globally. Countries such as Japan, Germany, and France are specifically flagged as potentially facing increased fiscal pressures.
The report also highlighted concerns regarding U.S. debt, noting that short-term borrowing accounts for approximately 20% of its total debt and 80% of Treasury issuance. This reliance on short-term financing could potentially increase political pressure on central banks to maintain lower interest rates, thereby risking the independence of monetary policy.
Key Takeaways
The record global debt levels underscore persistent vulnerabilities within the international financial system, particularly for emerging markets and nations grappling with escalating fiscal demands. As central banks navigate the complexities of inflation and economic growth, the interplay between sovereign debt levels and monetary policy independence will remain a critical global economic challenge.
