US, France, Germany drive debt to record $313 trillion

By Mark McSherry

Global debt increased by more than $15 trillion in 2023 to reach a new record high of $313 trillion, according to the latest Global Debt Monitor from the Washington-based Institute of International Finance (IIF).

Around 55% of this rise originated from mature markets, mainly driven by the US, France and Germany.

In emerging markets, the debt accumulation was mostly concentrated in China, India and Brazil, the IIF report said.

By sector, general governments saw the largest increases in the US dollar value of outstanding debt, followed by non-financial corporates.

Debt outside the financial sector hit $244 trillion, which is now over $45 trillion above pre-pandemic levels.

The global debt-to-GDP ratio saw a decline of around 2 percentage points to nearly 330% in 2023.

“This marked the third consecutive annual drop (in global debt-to- GDP ratio),” said the report.

“However, the pace of moderation last year was significantly slower than in 2021-22, amid slower economic growth and falling inflation.

“The reduction in debt ratios was particularly notable in mature markets, largely driven by European countries.

“Malta and Norway were the only mature market economies registering an increase in their total debt ratios.

“In sharp contrast, the EM debt-to-GDP ratio hit a new fresh high of 255%, with the biggest increases seen in India, Argentina, China, Russia, Malaysia, and Saudi Arabia.

“On the other hand, Chile, Colombia, Türkiye, and Poland experienced declines of around 10% pts in their total debt ratios …

“Despite growth still below potential, and rising interest expenses, the global economy is proving resilient to volatility in borrowing costs.

“Indeed, incoming economic data has been surpassing expectations across major countries, leading to a rebound in investor sentiment.

“This shift has been accompanied by a significant pickup in borrowing activity earlier this year.

“Particularly noteworthy is the increased issuance of sovereign Eurobonds by emerging markets, including low- income countries that have suffered considerably from limited access to international debt markets in recent years.

“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.

“However, risks and vulnerabilities remain …

“With Fed rate cuts on the horizon, uncertainty surrounding the trajectory of U.S. policy rates and the U.S. dollar could further increase market volatility and induce tighter funding conditions for countries with relatively high reliance on external borrowing.

“We anticipate a significant slowdown in the pace of balance sheet reduction by central banks as inflation ap- proaches its target.

“However, if inflationary pressures were to resume, regardless of the drivers — whether an escalation in trade tensions, a boost to growth from the adoption of AI technologies, growing concerns over budget discipline, higher energy prices amid accelerating clean energy transition — this could hasten central bank balance sheet runoff, negatively impacting the outlook for global debt markets through higher borrowing costs.

“With geopolitics rapidly emerging as a structural market risk, deeper geoeconomic fragmentation and the resurgence of geopolitical blocs raise concerns about increased government borrowing and fiscal discipline.

“Government budget deficits are still running well above pre-pandemic levels, and an acceleration in regional conflicts could trigger an abrupt surge in defense spending.

“Growing trade protectionism and geopolitical conflicts could also further exacerbate supply chain constraints, driving higher government spending to mitigate the adverse implications of increased fragmentation of trade and capital flows.”