A quarterly study released Thursday revealed that the world’s debt reached a new high of $337.7 trillion at the end of the second quarter, driven by a lower U.S. currency, improving global financial conditions, and a more accommodative stance from major central banks.
In the first half of the year, global debt increased by more than $21 trillion to $337.7 trillion, according to the Institute of International Finance, a trade association for financial services.
Although some of this was due to a declining dollar, the IIF found that the countries with the largest increases in debt levels in U.S. dollars were China, France, the United States, Germany, Britain, and Japan.
Since the year began, the value of the U.S. dollar has decreased 9.75% compared to a basket of key trading partners.
Global Debt Increase Comparable to the COVID-19 Pandemic:
According to the IIF’s Global Debt Monitor, “the magnitude of this increase was comparable to the surge seen in H2 2020, when pandemic-related policy responses drove an unprecedented buildup in global debt.”
Canada, China, Saudi Arabia, and Poland experienced the largest increases in debt-to-GDP ratios, which measure a country’s ability to repay debt by comparing it to its output.
According to the report, the ratio decreased in Norway, Japan, and Ireland.
At slightly over 324%, the global debt-to-output ratio was nevertheless gradually declining overall.
But in developing markets, the ratio reached a new high of 242.4% following a decline in the previous data from May.
Emerging market debt reached a record high of over $109 trillion, up $3.4 trillion in the second quarter.
PRESSURES IN THE BOND MARKET
Bond and loan redemptions in emerging countries are expected to reach a record high of around $3.2 trillion in the remaining months of 2025, according to the IIF.
It cautioned against “bond vigilantes,” or investors who sell off bonds of nations whose finances they believe are unsustainable, and warned that budgetary difficulties might worsen in nations like France, Germany, and Japan.
“While government debt ratios rose sharply across emerging markets in H1 — most notably in Chile and China — market reaction has been stronger in mature markets this year,” the International Finance Corporation stated.
IIF WARNS THAT SHORT-TERM BORROWING IS GROWING
Concerns over U.S. debt were also highlighted in the report, which noted that short-term borrowing currently makes up around 80% of Treasury issuance and 20% of all government debt.
According to the paper, this increased dependency on short-term debt may lead to greater political pressure on central banks to maintain low interest rates, thereby endangering their independence in monetary policy.
