Key Highlights

• Global debt increases by $12 trillion in just nine months, reaching $323 trillion.
• Falling borrowing costs and rising global risk appetite drive the surge.
• Emerging markets face record-high debt levels, surpassing 245% of GDP.
• Volatile fiscal conditions and upcoming repayment deadlines heighten risks.

Global debt has surged past $320 trillion, reaching a record $323 trillion by the end of September 2024. This represents a $12 trillion increase within the first three quarters of the year, according to a report by the Institute of International Finance (IIF).

Falling borrowing costs and a renewed global risk appetite have encouraged governments and corporations to issue debt at a rapid pace. Analysts are closely monitoring this trend, especially as sovereign debt alone could rise by a third by 2028, nearing $130 trillion.

“Rising trade tensions and supply-chain disruptions threaten global economic growth,” the IIF stated on Tuesday. The report also warned that the costs of managing debt are climbing, particularly in developed economies, making fiscal management increasingly challenging.

Why is Borrowing Becoming Attractive?

A key driver of the debt surge is declining borrowing costs, which have made loans more accessible for governments and businesses alike. In addition, global risk appetite has risen, prompting entities to take on more debt despite potential economic uncertainties.

Economic growth in countries like the United States has temporarily reduced debt-to-GDP ratios. Globally, this metric stands at 326%, more than 30 percentage points lower than its peak during the COVID-19 pandemic.

However, emerging markets are facing mounting pressure, with their debt nearing $105 trillion – an unprecedented 245% of GDP.

“Debt service costs are increasing everywhere,” the IIF report noted, adding that these costs are rising fastest in developed markets.

The anticipated fiscal volatility under the incoming Trump administration has further prompted some entities to issue debt before potential policy changes in January 2025.

Challenges Loom for Debt Management

While borrowing remains attractive, the road ahead is fraught with risks. With significant debt repayments due in 2025 and 2026, particularly in emerging markets, analysts warn of potential liquidity crises.

Shifts in investor sentiment could exacerbate fiscal pressures, especially for nations heavily reliant on external financing.

Meeting global emissions targets could also add $38 trillion to global debt by 2028, the IIF reported. This additional burden may strain public finances further, particularly in countries already grappling with high debt levels.

Final Notes

The unprecedented rise in global debt highlights the delicate balance between leveraging borrowing opportunities and managing fiscal stability.

While falling borrowing costs and increased risk appetite have driven the recent surge, the challenges of repayment deadlines and economic volatility loom large.

Governments and corporations must navigate these dynamics carefully to avoid destabilizing fiscal crises in the years ahead.