What is ‘global debt’ – and how high is it now?

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Victoria Masterson, Senior Writer, Forum Agenda, Madeleine North, Writer, Forum Agenda

This article was first published in May 2022 and updated in October 2023.

• Global debt has already hit a record $307 trillion in 2023, the Institute of International Finance says.
• This covers borrowing by governments, businesses and households.
• While recession concerns have eased in some quarters, 6 out of 10 chief economists expect the global economy to weaken this year, according to the World Economic Forum’s latest Chief Economists Outlook.

The sudden rise in inflation has pushed global debt to new highs.

In the second quarter of 2023, global debt was recorded as $307 trillion, largely driven by developed countries like the US, Japan, the UK and France.

So what is global debt and why does it matter?

Global debt is on the rise. Image: IMF

What is global debt?

Global debt is borrowing by governments, businesses and people, and it’s at dangerously high levels.

In 2021, global debt reached a record $303 trillion, a further jump from what was record global debt in 2020 of $226 trillion, as reported by the International Monetary Fund (IMF) in its Global Debt Database. This was the biggest one-year debt surge since the Second World War, according to the IMF.

Now it has not only reached a new record, but pushed the global debt-to-GDP ratio – which had previously been in decline – to 336% for the second consecutive quarter.

“As higher rates and higher debt levels push government interest expenses higher, domestic debt strains are set to increase,” the Institute of International Finance (IIF) warns.

Discover

What is the Forum doing to improve the global banking system?

The World Economic Forum’s Centre for the Fourth Industrial Revolution Network has built a global community of central banks, international organizations and leading blockchain experts to identify and leverage innovations in distributed ledger technologies (DLT) that could help usher in a new age for the global banking system.

We are now helping central banks build, pilot and scale innovative policy frameworks for guiding the implementation of DLT, with a focus on central bank digital currencies (CBDCs). DLT has widespread implications for the financial and monetary systems of tomorrow, but decisions about its use require input from multiple sectors in order to realize the technology’s full potential.

“

“Over the next four years, we should expect to see many central banks decide whether they will use blockchain and distributed ledger technologies to improve their processes and economic welfare. Given the systemic importance of central bank processes, and the relative freshness of blockchain technology, banks must carefully consider all known and unknown risks to implementation.”
”— Ashley Lannquist, Blockchain and Digital Assets Platform, World Economic Forum

Our Central Banks in the Age of Blockchain community is an initiative of the Platform for Shaping the Future of Technology Governance: Blockchain and Digital Assets.

Read more about our impact, and learn how you can join this first-of-its-kind initiative.

Why does global debt matter?

Emerging and developing economies have been the worst hit by previous debt crises, World Bank research shows.

To meet debt payments, at least 100 countries will have to reduce spending on health, education and social protection, the IMF estimates.

If countries default on their debts, it can cause panic on financial markets and economic slowdowns.

https://cdn.jwplayer.com/players/M8yATTj0-ncRE1zO6.html

For businesses, meeting repayments on high levels of debt can mean less money is available to invest in jobs and expansion. Insolvency is also a risk for businesses that are unable to pay back their loans.

For households, high levels of debt can force them to cut some areas of spending, such as food or fuel. Low-income households are most at risk, the IMF says.

What do experts say about global debt?

When low-income countries get into debt distress, it’s associated with “protracted recessions, high inflation and fewer resources going to essential sectors like health, education and social safety nets, with a disproportionate impact on the poor,” the World Bank says.

Debt distress is when a country is unable to fulfil its financial obligations, such as repayments due on its debt. The IMF and World Bank believe 60% of low-income countries are at or near this point.

Rising prices mean inflation is spiking, so central banks are increasing interest rates to try and contain this. Rising interest rates, in turn, mean higher loan repayments.

More than 80% of the 2023 debt build-up has come from the developed world, reports Reuters, with the US, Japan, the UK and France registering the largest increases. Among emerging markets, the biggest rises came from China, India and Brazil.