Global debt skyrockets to unprecedented $313 tn, emerging markets facing new challenges

The world has witnessed a staggering surge in global debt, reaching an unprecedented high of $313 trillion in 2023, as reported by the Institute of International Finance (IIF), a financial services trade group.

The IIF's Global Debt Monitor revealed that this record-breaking figure represents an increase of over $15 trillion in the last quarter of 2023 year-on-year, emphasising the monumental growth from around $210 trillion almost a decade ago.

According to the IIF, about 55 per cent of this surge in global debt originated from mature markets, with the United States, France, and Germany being the primary contributors.

Despite a decline of approximately 2 percentage points in the global debt-to-GDP ratio, settling at nearly 330 per cent in 2023, certain emerging markets experienced a surge in the ratio, indicating potential challenges in debt repayments.

Notably, India, Argentina, China, Russia, Malaysia, and South Africa registered the largest increases, raising concerns about their ability to meet debt obligations.

"While the reduction in this ratio was particularly notable in developed countries," stated the IIF, "some emerging markets saw a fresh high in the reading that indicates a country's ability to pay back debts."

The report highlighted uncertainties surrounding US policy rates and the US dollar, potentially increasing market volatility and tightening funding conditions for countries relying heavily on external borrowing.

Despite the concerns, the IIF noted that the global economy has demonstrated resilience to borrowing cost volatility, resulting in a rebound in investor sentiment.

The appetite for borrowing, especially in emerging markets, is on the rise in 2024, evidenced by increased international sovereign bond issuance volumes.

Notably, countries like Saudi Arabia, Mexico, Hungary, and Romania have engaged in significant bond issuances, reaching 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," suggested the IIF, highlighting the potential positive impact of the current trend on European economies.

However, the IIF expressed concerns about potential inflationary pressures, which could result in higher borrowing costs.

Geopolitical risks were also identified as a "structural market risk," with growing fragmentation raising concerns about fiscal discipline worldwide.

The IIF emphasised that government budget deficits remain above pre-pandemic levels, and any acceleration in regional conflicts could trigger a significant increase in defence spending, adding an additional layer of complexity to the global economic landscape.

(With inputs from Reuters)