Global debt hits record $312 trillion, climate finance a challenge, banking trade group says

NEW YORK (Reuters) – Global debt hit a record high of $312 trillion at the end of the second quarter, driven by borrowing in the United States and China, while a key debt ratio in emerging markets also scaled a fresh peak, data from a banking trade group showed.

The Institute of International Finance (IIF), a financial services trade group, said on Wednesday that global debt rose by 2.1 trillion in the first half to $312 trillion – a new high point after previous data was revised lower.

The IIF flashed warning signs on the trend of ever-increasing government borrowing in its latest Global Debt Monitor report, forecasting global government borrowing would rise from its current level of $92 trillion to $145 trillion by 2030 and top $440 trillion by 2050. 

“With the Fed’s new easing cycle expected to accelerate the pace of global debt buildup, a significant concern is the apparent lack of political will to address rising sovereign debt levels in both mature and emerging market economies,” the IIF report said.

A big chunk of the borrowing was driven by energy transition in the face of climate change which was expected to account for over a third of the projected rise by 2050.

“This poses significant challenges, as many governments are already allocating a growing share of their revenue to interest expenses,” the report said.

BIG COUNTRY, BIG BORROWER

The $2.1 trillion increase this year through June compares to $8.4 trillion in the first half of 2023, IIF data showed.

Apart from China and the U.S., India, Russia and Sweden also increased their debt, while other European countries and Japan saw a notable decline, the report said.

The global debt-to-GDP ratio – an indicator on the ability to repay debt by comparing to what is being produced – has stabilized around 327%-328%, with output numbers partly buoyed by above-target inflation in major economies.

In developed markets, that ratio reached its lowest level since 2018 driven by declines in household and non-financial corporate sectors borrowing.

In contrast, emerging markets saw their debt ratio reach a new high of over 245% of output, more than 25 percentage points higher than before the COVID-related lockdowns.