In the third quarter of 2023, global debt reached a historic high of $307.4 trillion, with emerging markets experiencing an unprecedented debt-to-output ratio, according to the Institute of International Finance.
The financial services trade group projects that global debt will exceed $310 trillion by the end of the year, marking a more than 25% increase over the past five years. The institute also warned that a shift towards political populism could further elevate debt levels in the coming year.
Emre Tiftik, the Director of Sustainable Research at the IIF, cautioned that debt servicing is claiming a growing portion of global revenues, reaching “alarming” levels in countries like Pakistan and Egypt. Projections indicate that in the United States, government interest expenses are expected to reach 15% of revenue by 2026, up from the current level of less than 10%.
During the last quarter, two-thirds of the increase in debt originated from developed markets, with notable contributions from the United States, Japan, France, and the United Kingdom. Emerging markets, including China, India, Brazil, and Mexico, also experienced significant upticks in debt.
While the global debt-to-GDP ratio remained relatively stable at 333%, it surged to 255% in emerging markets, marking a 32-percentage-point increase compared to the same period five years ago. This rise was particularly driven by Russia, China, Saudi Arabia, and Malaysia, while Chile, Colombia, and Ghana witnessed the most substantial declines in this ratio.
The IIF highlighted that government debt saw the most significant increase in the third quarter, emphasizing that budget deficits persist well above pre-pandemic levels in numerous countries. The institute also cautioned that household and corporate debt continue to escalate in key economies, such as China and the United States, with potential implications for various aspects ranging from elections to the transition to clean energy.
