Global Debt Hits Record $323 Trillion, Triggering Fears of an Incoming Debt Tsunami

Global Debt Hits Record $323 Trillion, Triggering Fears of an Incoming Debt Tsunami

Emmitt Barry

Global debt soared by over $12 trillion in the first three quarters of 2024, reaching a record $323 trillion, driven by falling borrowing costs and increased risk appetite, according to the latest Global Debt Monitor report by a banking trade group.

The Institute of International Finance (IIF) report suggests that sovereign debt could rise by a third to nearly $130 trillion by 2028, increasing global repayment risks.

Meanwhile, debt in emerging markets is nearing a record $105 trillion, or 245% of GDP, up from $99 trillion in Q4 2023.

This rise in global debt marked the third-largest quarterly increase on record, following significant surges in Q2 and Q4 of 2020 during the COVID-19 pandemic. The third-quarter increase, which occurred before the U.S. election in November, was only surpassed by the debt spikes in 2020 when countries and companies rushed to borrow.

“Rising trade tensions and supply-chain disruptions threaten global economic growth, increasing the likelihood of mini boom-bust cycles in sovereign debt markets as inflationary pressures resurface and public finances tighten,” the report stated, adding that the increased interest cost as a result could “exacerbate fiscal strains” and make debt management increasingly difficult.

The report warned that global climate commitments, highlighted by the upcoming COP29 conference in Baku, Azerbaijan, could exacerbate the rise in debt. The summit will focus on strengthening nations’ climate commitments, prioritizing emissions reduction targets and boosting climate finance, particularly for emerging markets.

“Moreover, given the chronic underestimation of actual government spending needs in official public debt statistics, debt levels could rise even higher, particularly when accounting for the climate-related spending required to stay on track with net-zero targets and national climate commitments,” said the IIF.

The IIF stated that fully meeting global emissions reduction targets could add an extra $38 trillion to global debt by 2028.

“Under such a scenario, global government debt levels could reach $170 trillion by 2028, with emerging markets expected to record a sharp build-up in external debt as global efforts to mobilize $1.3 trillion of external funding annually to emerging markets by 2035 gain momentum following COP29 in Baku.”