The world’s debt has soared to an unprecedented $323 trillion, surging by $12 trillion in the first three quarters of 2024, according to a new report from the Institute of International Finance (IIF).
The sharp rise comes as falling borrowing costs and a resurgence of investor risk appetite drive increased lending, reported Reuters. However, this rapid escalation highlights vulnerabilities in global financial systems, especially as governments continue to operate under significant budget deficits.
The IIF projects sovereign debt could expand by a staggering 33% by 2028, nearing $130 trillion. This could exacerbate repayment challenges worldwide, particularly as inflationary pressures and tighter public finances create fiscal strain.
The report warns that rising trade tensions and ongoing disruptions in supply chains further complicate the outlook, potentially triggering “mini boom-bust cycles” in sovereign debt markets.
The anticipated policy volatility of Donald Trump’s second presidential term also contributes to the uncertainty.
The report notes that some issuers have rushed to raise funds ahead of his January inauguration, fearing that market conditions may become less predictable due to his potential imposition of trade tariffs on key partners, including Europe, China, Mexico, and Canada. This reflects growing anxiety about sudden shifts in the economic landscape.
Despite the alarming rise in total debt, the debt-to-GDP ratio—a critical measure of debt sustainability—has declined globally, falling to approximately 326%. This is a marked improvement from the COVID-19-era peak. However, emerging markets present a contrasting picture, with debt levels reaching $105 trillion, equivalent to 245% of their combined GDP. Rising interest rates in developed economies compound debt service costs, intensifying the strain on governments and corporations.
Efforts to meet global emissions reduction targets are adding further financial challenges.
The report estimates that achieving these goals could add an additional $38 trillion to global debt by 2028. With the economic toll of climate action mounting, balancing environmental imperatives with fiscal responsibility is becoming a daunting task for policymakers worldwide.
The next few years could prove critical, as significant debt repayments, particularly in emerging markets, are due in 2025 and 2026.
The IIF warns that increased volatility in financial markets could leave some countries vulnerable to liquidity crises. A sudden loss of investor confidence could wreak havoc on already fragile economies, making the balance between managing growth and maintaining fiscal stability precarious for these nations.
As global borrowing accelerates, the ripple effects will likely influence everything from inflation to geopolitical stability.
Policymakers, investors, and financial institutions will need to navigate an increasingly complex landscape to mitigate the risks posed by rising debt levels. How the world responds to this challenge will shape the economic outlook for years to come.