In 2023, global debt surged to an unprecedented $313 trillion, marking a $15 trillion increase from the previous year, as the Institute of International Finance (IIF) reported on February 21.
Although this was a new high, the ratio of debt to the worldwide Gross Domestic Product (GDP) actually fell slightly to 330%. This marks the third year it has gone down.
The IIF found that more than half of this debt increase came from well-established markets.
The United States, France, and Germany played big roles. In countries on the rise, like China, India, and Brazil, debt also grew a lot.
In Europe, debt relative to GDP mostly went down, except in Malta and Norway. But in developing countries, the ratio peaked at 255%.
India, Argentina, China, Russia, Malaysia, and Saudi Arabia all saw their debt ratios go up.
Meanwhile, Chile, Colombia, Turkey, and Poland managed to cut their ratios by about 10 percentage points.
The report also talks about the dangers of changing geopolitics, deeper economic splits, and new political groups forming.
These could all make government debt and spending go up. It warns that bigger defense budgets could result from more regional conflicts.
Also, more protectionist trade policies and political tensions might make supply chains even more strained. This could force governments to spend more to deal with these challenges.
Silvio Campos Neto, from Tendências Consultoria, says worries over rising global debt have grown, especially after the COVID-19 pandemic forced governments to spend more.
Now, with interest rates up, both developed and emerging economies face more risk. He points out that the world’s increased reliance on borrowing is a danger.
This is especially true during times of low confidence or high geopolitical tension, which could make it hard for some countries to manage their debts.
Campos Neto believes that the need for more funding and the pressure this puts on interest rates make the situation worse.
This could harm countries’ abilities to handle their debts. Looking ahead, he questions how long the world can keep up with this level of borrowing.