A new report by the Institute of International Finance (IIF) reveals the global debt pile rose by $8.3 trillion over the first quarter of the year, hitting a near-record high of $30 trillion as central banks embarked on an aggressive strategy of monetary tightening.
In its Global Debt Monitor report, released on Wednesday, the global debt rose by the highest level seen since the first quarter of 2022, with the quarterly reading marking the second highest ever.
The IIF also pointed out that the mixture of such high debt levels, with rising interest rates will mean the cost of servicing that debt will be significant, which will lead to concerns about leverage in the financial system.
The IIF said, “With financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more ‘zombie firms’ – already approaching an estimated 14% of US-listed firms.”
The financial industry body emphasized that government borrowing needs to remain elevated, even despite concerns over a potential credit crunch coming on the heels of recent turmoil in the banking sectors in the United States and Switzerland.
The report also noted that as populations age and healthcare costs rise, it is continuing to place strains on government balance sheets, as “heightened geopolitical tensions are also expected to drive further increases in national defense spending over the medium term,” which will have an effect on both governments and corporate borrowers.
The IIF warned, “If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer.”
Meanwhile overall debt in emerging markets reached a new record high at over $100 trillion, at roughly 250% of GDP, an increase from $7 trillion in 2019. According to the IIF, the biggest contributors to the surge were China, Mexico, Brazil, India and Türkiye.
Among the developed markets, the biggest quarterly increases were seen among Japan, the US, France and the UK.
