Global debt hits new record high at $313 trillion: IIF

LONDON: Global debt levels hit a new record high of $313 trillion in 2023, with developing economies scaling a fresh peak for the ratio of debt to their gross domestic product, a study showed.

The Institute of International Finance (IIF), a financial services trade group, said on Wednesday that global debt surged by over $15 trillion in the last quarter of 2023 year-on-year. The figure stood at around $210 trillion almost a decade ago, according to the data.

“Around 55% of this rise originated from mature markets, mainly driven by the U.S., France, and Germany,” said the IIF in its Global Debt Monitor, adding the global debt-to-GDP ratio declined by around 2 percentage points to nearly 330% in 2023.

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While the reduction in this ratio was “particularly notable” in developed countries, some emerging markets saw fresh high in the reading that indicates a country’s ability to pay back debts. India, Argentina, China, Russia, Malaysia and South Africa registered the largest increases, signalling potential growing challenges in debt repayments.

“With Fed rate cuts on the horizon, uncertainty surrounding the trajectory of U.S. policy rates and the U.S. dollar could further increase market volatility and induce tighter funding conditions for countries with relatively high reliance on external borrowing,” the report said.

The IIF added that global economy is proving “resilient” to the volatility in borrowing costs, leading to a rebound in investor sentiment.

The appetite for borrowing is growing particularly in emerging markets in 2024, as international sovereign bond issuance volumes have increased.

The start of the year - generally a busy time for debt sales of all sorts - has seen Saudi Arabia, Mexico, Hungary, Romania and a raft of others deliver some big ticket bond issuance, which hit an all-time record for January at $47 billion.

“If sustained, this upbeat sentiment should also reverse the ongoing deleveraging by European governments and non-financial corporates in mature markets, both of which are now less indebted than in the run-up to the pandemic.”

The IIF, however, voiced its concern over a potential revival of inflationary pressures, which could result in higher borrowing costs.

Also, geopolitics had rapidly emerged as a “structural market risk”, the IIF said, with deeper fragmentation raising concerns about fiscal discipline across the globe.

“Government budget deficits are still running well above pre-pandemic levels, and an acceleration in regional conflicts could trigger an abrupt surge in defense spending.”