In the fastest annual increase since the pandemic spike, about $29 trillion was added over the course of 2025, pushing global debt to a record $348 trillion at the end of the year, according to a banking trade group’s study released on Wednesday.
The Institute of International Finance’s most recent Global Debt Monitor said that governments were the main driver of the growth, contributing over $10 trillion of the increase. The United States, China, and the euro area were responsible for around three-quarters of the jump.
Given that bond markets have absorbed unprecedented debt sales at the beginning of the year, the figures suggest that the global debt cycle is now driven more by ongoing fiscal deficits in major nations than by families or businesses.
The challenge for investors is whether borrowing can continue to accelerate without pushing debt ratios higher again or challenging demand for sovereign paper, given that global growth is predicted to remain steady but low.
According to the analysis, advanced economies were primarily responsible for the global debt’s slight decline to roughly 308% of GDP in 2025 as a percentage of output. Emerging market debt ratios kept rising, reaching a record of more than 235% of GDP.
The IIF noted persistent fiscal deficits in major economies and warned that “a powerful mix of fiscal expansion, accommodative monetary policy, and ‘lighter-touch’ regulatory simplification could drive further debt accumulation—while heightening concerns about rising leverage and overheating in parts of the market.”
THE DOMINANCE OF SOVEREIGNS IN THE RECORD ISSUANCE
While non-financial business debt reached approximately $100.6 trillion, government debt increased from $96.3 trillion at the end of 2024 to over $106.7 trillion by the end of this year.
The report indicated a more moderate increase in household liabilities to $64.6 trillion.
Both emerging and established markets saw new record highs in debt, with emerging markets reaching roughly $116.6 trillion and developed markets reaching about $231.7 trillion.
A significant change in composition has occurred: governmental debt is still growing, while private-sector debt ratios have decreased from epidemic levels.
Because of this structural inclination towards sovereign leverage, global balance sheets are more susceptible to changes in investor confidence and interest rates.
As governments scrambled to pre-fund budget demands as investor demand remained strong, January saw one of the busiest beginnings to a year on record for sovereign bond issuance worldwide.
Additionally, corporate borrowers have been active. After a swift January, U.S. investment-grade issuance is poised for another robust year, aided by major industrial and technology issuers.
According to the IIF report, “Easier financial conditions should support efforts to mobilize much-needed capital for national priorities, including defense finance.”
“A powerful new wave of global capital expenditure ‘supercycles’ is set to reinforce this momentum, with large-scale investment in (artificial intelligence)-driven data centres, energy security and transition, and resilient infrastructure emerging as a major growth engine for global debt markets.”
The IIF pointed out that issuance across the high-yield bond, leveraged loan, and initial public offering (IPO) markets has also been bolstered by more favorable funding circumstances and a robust risk appetite.
According to the report, if government deficits continue to widen and businesses continue to use bond markets to finance capital expenditures, this environment may keep global debt from decreasing in 2026.
LIMITED GROWTH-RELATED CUSHION
In its World Economic Outlook report released in January 2026, the IMF predicted that global growth would be around 3.3% in 2026, with advanced economies growing by about 1.8% and emerging markets by just over 4%.
Although those rates are stable by today’s standards, they are insufficient to reduce the value of growing debt stocks quickly.
Debt-to-GDP ratios may start to rise again if borrowing continues at its 2025 pace, especially in emerging nations where leverage is already at record levels.
While mature economies face more than $20 trillion in maturing bonds and loans, developing countries are expected to confront a record refinancing burden of over $9 trillion in debt redemptions in 2026, according to the IIF.
Strong demand has so far kept finance in order, it said. Global debt levels are expected to stay close to historic highs, however, due to a combination of high public borrowing, significant rollover requirements, and record early-year issuance.
As a result, decisions about fiscal policy will increasingly determine the trajectory of the global balance sheet.
