Government spending lifts global debt to a record $348 trillion in 2025, says IIF

Global debt climbed to a record $348 trillion at the end of 2025, after nearly $29 trillion was added over the year in the fastest yearly build-up since the pandemic surge, a banking trade group reported on Wednesday.

The increase was driven primarily by governments, which accounted for more than $10 trillion of the rise, with the United States, China and the euro area responsible for roughly three-quarters of the jump, the Institute of International Finance said in its latest Global Debt Monitor.

The data point to a global debt cycle now driven less by households or companies and more by persistent fiscal deficits in major economies, as bond markets have absorbed record debt sales at the start of the year.

With global growth expected to remain steady but moderate, the question for investors is whether borrowing can keep accelerating without pushing debt ratios higher again or testing demand for sovereign paper.

As a share of output, global debt edged lower to about 308% of GDP in 2025, the report said, driven mainly by advanced economies. Debt ratios in emerging markets continued to climb, hitting a record above 235% of GDP.

“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 IIF said, pointing to persistent fiscal deficits across major economies.

SOVEREIGNS DOMINATE AMID RECORD ISSUANCE

Government debt globally stood at roughly $106.7 trillion at year-end, up from $96.3 trillion at end-2024, while non-financial corporate debt reached about $100.6 trillion. Household liabilities rose more moderately to $64.6 trillion, the data showed.

In mature markets, total debt climbed to around $231.7 trillion, while emerging markets reached about $116.6 trillion, both fresh record highs.

The composition shift is notable: private-sector debt ratios have fallen from pandemic peaks, while public debt continues to expand. That structural tilt toward sovereign leverage leaves global balance sheets more exposed to shifts in interest rates and investor confidence.

January saw one of the busiest starts to a year on record for sovereign bond issuance globally, as governments rushed to pre-fund budget needs while investor demand remained firm.

Corporate borrowers have also been active. U.S. investment-grade issuance is on track for another strong year after a rapid January, helped by large technology and industrial issuers.

“Easier financial conditions should support efforts to mobilize much-needed capital for national priorities, including defense finance,” said the IIF report. “A powerful new wave of global capital expenditure ‘supercycles’ is set to reinforce this momentum, with large-scale investment in (artificial intelligence)-driven data centers, energy security and transition, and resilient infrastructure emerging as a major growth engine for global debt markets.”

The IIF noted that easier funding conditions and strong risk appetite have also supported issuance across high-yield bonds, leveraged loans and IPO markets.
That backdrop could keep global debt rising in 2026 if fiscal deficits remain wide and companies continue to finance capital spending through bond markets, it said.

LIMITED CUSHION FROM GROWTH

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 just above 4%.

Those rates are steady by recent standards but not strong enough to rapidly dilute rising debt stocks. If borrowing continues at the 2025 pace, debt-to-GDP ratios could begin climbing again, 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 burden, while mature markets stare at over $20 trillion in maturing bonds and loans.

For now, strong demand has helped keep funding orderly, it said. But the combination of elevated public borrowing, heavy rollover needs and record early-year issuance means global debt levels are likely to remain near historic highs, with fiscal policy choices increasingly determining the direction of the world’s balance sheet.

Source: Reuters

- Agencies