According to a report by the Institute of International Finance, the world is struggling with $315 trillion in debt.
This global debt wave is the largest, fastest and most widespread increase in debt since World War II and coincides with the COVID-19 pandemic.
“The increase marks the second consecutive quarterly increase and was mainly driven by emerging markets, where debt soared to an unprecedented high of more than $105 trillion, up from $55 trillion more than a decade ago,” the IIF said in its quarterly Global Debt Monitor report released in May.
About two-thirds of the total debt of $315 trillion comes from mature economies, with Japan and the United States accounting for the majority of that debt.
But the debt-to-GDP ratios of mature economies, seen as a good indicator of a country’s ability to repay its debts, have generally been falling.
Meanwhile, emerging markets have $105 trillion in debt, but their debt-to-GDP ratio hit a record high of 257%, the first increase in the overall ratio in three years.
China, India and Mexico were the largest contributors, according to the report.
The IIF noted that persistent inflation, escalating trade tensions and geopolitical tensions pose significant risks to debt trends and are factors that could “put upward pressure on global financing costs.”
“The strength of household balance sheets should provide a buffer against ‘higher for longer’ interest rates in the short term, but government budget deficits remain higher than pre-pandemic levels,” the IIF added.
Of the $315 trillion in outstanding debt, household debt, including mortgages, credit cards, student loans, etc., reached $59.1 trillion.
Of the $164.5 trillion in corporate debt used by businesses to fund operations and growth, the financial sector alone accounts for $70.4 trillion, while public debt makes up the remaining $91.4 trillion.
