Global debt edges to fresh record, populism could push it higher: IIF

LONDON: Global debt edged up to a record $307.4 trillion in the third quarter, and the debt-to-output ratio in emerging markets hit an all-time high, the Institute of International Finance said on Thursday.

The financial services trade group estimated that global debt will hit $310 trillion by the end of the year, a more than 25% increase in five years, and warned that a shift towards political populism could push debt even higher next year.

“Looking ahead to 2024, a swathe of elections and ongoing geopolitical frictions raise concerns about increased government borrowing and fiscal discipline, including India, South Africa, Pakistan, and the US” it said.

“If upcoming elections lead to populist policies aimed at controlling social tensions, the result could be still more government borrowing and still less fiscal restraint.” Two-thirds of last quarter’s debt increase came from developed markets, led by the United States, Japan, France and the United Kingdom. Emerging markets China, India, Brazil and Mexico also notched sharp increases.

While global debt-to-GDP ratios were stable, they topped 255% in emerging markets - 32 percentage points above the same period five years ago - driven by Russia, China, Saudi Arabia and Malaysia.

The IIF said government debt had the biggest increase in the third quarter, adding that budget deficits remain well above pre-pandemic levels in many countries.

However, it warned that the debt burden for households and corporates is still rising in major economies, including China and the United States, with ramifications for everything from elections to the clean energy transition.

“With firms’ borrowing appetite at multi-year lows amid still-tightening funding conditions and heightened geoeconomic fragmentation, the prospects for climate finance look increasingly at risk in recent quarters, as evidenced by a marked slowdown in ESG debt issuance,” it said.