The world’s debt has reached an unprecedented $323 trillion, increasing by $12 trillion in the first three quarters of 2024, according to a new report from the Institute of International Finance (IIF). This rise is driven by lower borrowing costs and heightened investor risk appetite, but it highlights weaknesses in global financial systems as governments maintain significant budget deficits.
The IIF estimates that sovereign debt may rise by 33% by 2028, approaching $130 trillion, which could make repayment more difficult, especially amid inflation and tighten public finances. The report cautions that growing trade tensions and supply chain disruptions could lead to "mini boom-bust cycles" in sovereign debt markets. Additionally, uncertainty surrounding Donald Trump’s potential second presidential term adds to the situation, as some issuers fear market changes that could arise from his trade policies.
Though total debt is rising, the global debt-to-GDP ratio has improved, decreasing to around 326%, down from the COVID-19 peak. However, emerging markets face high debt levels of $105 trillion, which is 245% of their GDP. Rising interest rates in developed countries are adding to the cost of debt service, putting pressure on governments and businesses.
The need to meet global emissions reduction goals could add an extra $38 trillion to worldwide debt by 2028. The next few years are crucial, as many countries will face significant debt repayments in 2025 and 2026. Increased financial market volatility may make some countries vulnerable to liquidity crises, and a lack of investor confidence could harm fragile economies. How the world addresses these debt challenges will impact future economic stability.
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