Government spending lifts global debt to a record $348 trillion in 2025, says IIF
Global debt climbed to an all-time high of $348 trillion by the end of 2025, after almost $29 trillion was added over the year, its fastest annual increase since the pandemic-era spike, according to the Institute of International Finance (IIF) in its latest Global Debt Monitor released on Wednesday (February 25).
The IIF said the latest upswing was overwhelmingly driven by the public sector.
Government borrowing made up more than $10 trillion of the increase, with the United States, China and the euro area together accounting for roughly three-quarters of the jump.
The figures suggest the global debt cycle is now being propelled less by households or businesses and more by persistent fiscal deficits in major economies.
Bond markets have so far taken the strain, absorbing record debt sales early in the year, but investors are increasingly focused on whether borrowing can keep accelerating without lifting debt ratios again, or testing appetite for sovereign paper.
Debt ratios diverge between rich and emerging economies
Measured against output, global debt edged down to about 308% of GDP in 2025, a shift the IIF attributed mainly to advanced economies.
In contrast, emerging-market debt ratios continued rising, reaching a new high above 235% of GDP.
The IIF warned that a combination of fiscal expansion, relatively accommodative monetary policy, and lighter-touch regulation could encourage further borrowing, while intensifying concerns about higher leverage and overheating risks in parts of the market.
Sovereigns dominate as issuance stays heavy
By category, government debt stood at roughly $106.7 trillion at year-end, up from $96.3 trillion at the end of 2024.
Non-financial corporate debt rose to about $100.6 trillion, while household liabilities increased more modestly to $64.6 trillion.
Across regions, total debt in mature markets climbed to around $231.7 trillion, while emerging markets reached about $116.6 trillion, both fresh record highs.
The IIF highlighted a notable shift in the mix: private-sector debt ratios have retreated from their pandemic peaks, but public debt continues to expand.
That tilt towards sovereign leverage leaves global balance sheets more sensitive to changes in interest rates and investor confidence.
January delivered one of the busiest openings to a year on record for sovereign bond issuance, as governments rushed to pre-fund budget needs while demand remained firm.
Corporate borrowers have also stayed active, with US investment-grade issuance on track for another strong year after a rapid January led by large technology and industrial names.
The report said easier financial conditions should help channel capital towards national priorities, including defence financing, and argued that a new wave of capital spending “supercycles” is reinforcing the trend.
It pointed to large-scale investment in AI-driven data centres, energy security and the energy transition, and resilient infrastructure as a major engine for debt-market growth.
The IIF added that strong risk appetite and improved funding conditions have also supported issuance across high-yield bonds, leveraged loans and IPO markets.
It said global debt could keep climbing in 2026 if fiscal deficits remain wide and companies continue tapping bond markets to fund capital expenditure.
Limited cushion from growth and big refinancing needs
The report also flagged that economic growth may not be strong enough to dilute debt quickly.
The IMF, in its January 2026 World Economic Outlook update, projected global growth of about 3.3% in 2026, with advanced economies expanding roughly 1.8% and emerging markets growing just above 4%.
Those rates are steady by recent standards but could still leave debt burdens rising if borrowing continues at the 2025 pace, particularly in emerging markets, where leverage is already at record levels.
The IIF estimated that emerging markets face more than $9 trillion in debt redemptions in 2026, a record refinancing load, while mature markets are looking at over $20 trillion in maturing bonds and loans.
For now, strong demand has helped keep funding conditions orderly.
Still, the combination of elevated public borrowing, heavy rollover requirements and record early-year issuance suggests global debt is likely to remain near historic highs, making fiscal policy choices an increasingly decisive factor in the direction of the world’s balance sheet.
Reuters
