Global Debt Reaches Record High of $337.7 Trillion Amid Easing Conditions

Global debt has surged to a record high of $337.7 trillion as of the end of the second quarter of 2023, according to the Institute of International Finance (IIF). This marks an increase of over $21 trillion in just the first half of the year, driven by easing global financial conditions, a weakening U.S. dollar, and a more accommodative stance from major central banks.

The IIF’s quarterly report highlights that countries such as China, France, the United States, Germany, Britain, and Japan experienced the most significant increases in debt levels, primarily in U.S. dollar terms. The U.S. dollar has depreciated by 9.75 percent since the beginning of the year against a basket of major trading partners, contributing to the rise in reported debt figures.

Debt Levels Comparable to Pandemic Surge

The increase in global debt is reminiscent of the sharp rise observed in the second half of 2020, which was largely driven by pandemic-related policy responses. The IIF emphasized that the current scale of debt accumulation is significant, noting that the global debt-to-GDP ratio remains just above 324 percent. In contrast, emerging markets have reached a record debt-to-output ratio of 242.4 percent, following a revision from the previous report in May. Total debt in emerging markets now exceeds $109 trillion, with an increase of $3.4 trillion in the second quarter alone.

The report further indicates that countries like Canada, China, Saudi Arabia, and Poland faced the sharpest increases in their debt-to-GDP ratios. Meanwhile, some nations, including Ireland, Japan, and Norway, saw a decline in their ratios.

Emerging Markets Face Bond Market Pressures

Emerging markets are projected to encounter nearly $3.2 trillion in bond and loan redemptions by the end of 2025. The IIF cautioned that fiscal strains could intensify in established economies such as Japan, Germany, and France. The report raised concerns regarding “bond vigilantes,” a term referring to investors who sell off bonds from countries perceived to have unsustainable finances.

While government debt ratios have surged in emerging markets during the first half of the year, the reaction from the market has been more pronounced in developed nations.

Additionally, the IIF highlighted rising concerns about U.S. debt, noting that short-term borrowing now constitutes approximately 20 percent of total government debt, representing about 80 percent of Treasury issuance. This growing reliance on short-term debt could exert political pressure on central banks to maintain lower interest rates, potentially jeopardizing their monetary policy autonomy.

The findings from the IIF underscore the complexities of the current global financial landscape, where record levels of debt present both opportunities and risks for economies worldwide.