On Thursday, September 25th, the International Institute of Finance (IIF) released a quarterly report showing that global debt had reached a historic high of $337.7 trillion by the end of the second quarter. This surge was driven primarily by the relaxed global financial environment, a weaker US dollar, and major central banks adopting looser monetary policies.
The report, titled “Global Debt Monitor: Seismic Shifts in Global Debt Markets – Demographics, Deglobalization, Decarbonization and Digitalization”, revealed that global debt had increased by $21 trillion in the first half of the year, reaching $337.7 trillion. China, France, the United States, Germany, the United Kingdom, and Japan saw the largest increases in debt levels, partially due to the weakening US dollar. Since the beginning of the year, the US dollar has depreciated by 9.75% against major trading partner currencies.
The report stated, “The scale of this debt increase can be compared to the surge during the second half of 2020 when policies to combat the pandemic led to an unprecedented increase in global debt.”
In terms of debt-to-GDP ratios (a measure of a country’s debt repayment capacity), Canada, China, Saudi Arabia, and Poland saw the largest increases, while Ireland, Japan, and Norway saw declines in their debt-to-GDP ratios.
Overall, the global debt-to-GDP ratio is slowly decreasing, currently slightly above 324%. However, the debt-to-GDP ratio in emerging markets has risen to 242.4%, reaching a new high since the downward revision in a report from May.
In the second quarter, the total debt in emerging markets increased by $3.4 trillion, surpassing $109 trillion to achieve a historic high. The report highlighted that emerging markets face pressure to repay nearly $3.2 trillion in bonds and loans due by the end of 2025.
The report stated, “In the first half of the year, the government debt ratios in emerging markets have increased significantly, most notably in Chile and China.”
It warned that fiscal pressures in countries like Japan, Germany, and France may intensify, and vigilance is needed against so-called “bond vigilantes,” who are investors selling bonds of countries with poor fiscal conditions.
The report also raised concerns about US debt, noting that short-term borrowings account for 20% of the total US government debt, approximately 80% of US Treasury issuances.
According to the report, an increased reliance on short-term debt could escalate political pressure on central banks to maintain low interest rates, thereby threatening the independence of monetary policy.