Global Debt Is at a Record High. Here’s What That Means

By: Anneken Tappe · June 03, 2024 · Reading Time: 3 minutes

Global debt increased by $1.3 trillion in the first quarter of the year, climbing to a record high of $315 trillion, according to the Institute of International Finance (IIF). Even though mainly emerging economies drove this increase, it’s still important to put these numbers in perspective to understand how the debt burden can shape the world around us.

Vicious Cycle

Many countries instituted pandemic-era stimulus policies to keep their economies afloat. That stimulus was then followed by high levels of inflation in many places, which, in turn, led to rising interest rates, and made debt more expensive to carry.. Together, these factors have helped raise global debt levels from $255 trillion in 2019 to today’s all-time high.

In the United States, stubborn inflation has repeatedly delayed highly anticipated interest rate cuts by the Federal Reserve. And because rates stateside continue to be so high, the U.S. dollar index continues to be very attractive for foreign investors, pushing the value of the dollar index up more than 16% since 2021. This has driven dollar-denominated debt held by foreign central banks and investors to a record $8 trillion in the fourth quarter of 2023.

Adding all of these factors up, there is tremendous pressure on emerging markets, which often rely on foreign investments, or may trade in dollars. Emerging markets include China, India, and Mexico, for example. In the first quarter, emerging markets collectively held $105 trillion in debt, increasing their debt-to-GDP ratio for the first time in three years.

Debt Consequences

If interest rates stay higher for longer, it could hamstring borrowers and make the cost of carrying debt a bigger problem than it already is.

But it may be hard to decrease the debt in today’s climate. Geopolitical tensions and stricter trade policies could make it harder for certain economies to service their debt. The IIF expects another $5.3 trillion in global government debt by year’s end.

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