Key Points
- Global debt reached a record $323 trillion in the first three quarters of 2024. Due to large government deficits, sovereign debt could rise to $130 trillion by 2028.
- Rising trade tensions and inflationary pressures complicate debt management.
- Trump’s anticipated return has led to preemptive debt issuance amid market concerns.
- Emerging market debt nears $105 trillion, accounting for 245% of GDP. Meeting climate targets may add $38 trillion to global debt by 2028.
Global debt surged by over $12 trillion in the first three quarters of 2024, reaching a record high of nearly $323 trillion, driven by falling borrowing costs and heightened risk appetite, according to a report from the Institute of International Finance (IIF). The financial services trade group highlighted that ballooning government budget deficits could push sovereign debt to approximately $130 trillion by 2028, posing significant repayment risks worldwide.
The report emphasized that rising trade tensions and persistent supply-chain disruptions undermine global economic growth. These pressures increase the likelihood of periodic boom-and-bust cycles in sovereign debt markets as inflationary trends resurface and fiscal policies tighten. Higher interest rates, a potential consequence of these economic shifts, could exacerbate fiscal stress, making debt management increasingly complex for many nations.
The anticipation of Donald Trump’s return to the White House has added a layer of uncertainty to global financial markets. His promises to reintroduce trade tariffs on key trading partners, including Europe, Mexico, Canada, and China, have prompted some issuers to accelerate borrowing activities before his administration begins in January. This preemptive strategy mitigates potential market volatility tied to unpredictable policy shifts.
Despite the election-related uncertainties, the third quarter of 2024 saw a debt increase of unprecedented scale, marking the third-largest quarterly rise on record. Only the surges during the second and fourth quarters of 2020, spurred by emergency borrowing during the COVID-19 pandemic, exceeded this growth.
While global debt-to-GDP ratios remain a critical measure of economic health, the report noted a slight decline in this metric due to robust economic growth, particularly in the United States. Debt-to-GDP has slipped to around 326%, over 30% points below its peak during the pandemic-driven borrowing spree.
Emerging markets also grapple with rising debt burdens, nearing $105 trillion, representing 245% of GDP. Debt service costs are escalating globally, with developed nations facing steep increases. Adding to this strain, efforts to meet global emissions reduction targets could contribute an additional $38 trillion to the world’s debt by 2028.
With significant debt maturities looming in 2025 and 2026, especially in emerging markets, the IIF warns of heightened risks of liquidity crises. Rising volatility in investor sentiment could leave some sovereigns vulnerable to financial shocks, further amplifying concerns over debt sustainability.
