According to a recent Reuters article, global debt levels have surged to a new record high of $313 trillion in 2023. This unprecedented increase has placed developing economies in a precarious position, as they now face a fresh peak in the ratio of debt to their gross domestic product (GDP), the Institute of International Finance (IIF) reported.
According to the financial services trade group’s findings, as detailed by Reuters, the last quarter of 2023 saw global debt rise by over $15 trillion year-on-year. This marks a significant jump from the $210 trillion recorded almost a decade ago, underscoring the rapid accumulation of debt worldwide.
Reuters cites the IIF’s Global Debt Monitor, which points out that “around 55% of this rise originated from mature markets, mainly driven by the U.S., France, and Germany.” Despite this, the global debt-to-GDP ratio experienced a slight decline of around two percentage points, settling at nearly 330% in 2023. This reduction was notably pronounced in developed countries, whereas some emerging markets witnessed fresh highs in their debt-to-GDP ratios, signaling potential challenges in debt repayment. Countries like India, Argentina, China, Russia, Malaysia, and South Africa were highlighted by the IIF for registering the largest increases.
The report, as Reuters explains, also touches on the implications of anticipated Federal Reserve rate cuts. The uncertainty surrounding U.S. policy rates and the U.S. dollar could exacerbate market volatility and tighten funding conditions for countries heavily reliant on external borrowing. Despite these challenges, the IIF acknowledges the global economy’s resilience to fluctuations in borrowing costs, which has contributed to a rebound in investor sentiment.
Emerging markets, in particular, are showing a growing appetite for borrowing in 2024, with international sovereign bond issuance volumes on the rise. Reuters notes that the beginning of the year has seen significant bond issuances from countries like Saudi Arabia, Mexico, Hungary, Romania, among others, reaching an all-time record for January at $47 billion.
However, as Reuters reports, the IIF expresses concern over the potential resurgence of inflationary pressures, which could lead to higher borrowing costs. Additionally, geopolitics has quickly become a “structural market risk,” with increased fragmentation raising fiscal discipline concerns worldwide. The report warns that government budget deficits remain significantly above pre-pandemic levels, and escalating regional conflicts could prompt a sudden increase in defense spending.
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