Global Debt Surges to Record $318 Trillion in 2024, Warns IIF

Theodore QuinnWednesday, Feb 26, 2025 2:53 am ET
5min read

The Institute of International Finance (IIF) has issued a stark warning: global debt has surged to a record high of $318 trillion in 2024, marking a $7 trillion increase from the previous year. This alarming figure underscores the urgent need for policymakers to address the mounting debt crisis and prevent a potential global economic meltdown.



The rapid increase in global debt, particularly in 2024, was driven by two main factors: the surge in debt accumulation in emerging markets and the continued debt accumulation in developed markets.

1. Emerging Markets: Around 65% of the 2024 rise in global debt came from emerging markets, primarily China, India, Saudi Arabia, and Türkiye. This surge in debt accumulation in emerging markets can be attributed to:
* Increased government spending on infrastructure and social programs to stimulate economic growth and mitigate the impacts of the COVID-19 pandemic.
* Lower interest rates and favorable funding conditions, which encouraged borrowing.
* A rebound in commodity prices, which boosted the economies of resource-rich emerging markets.
2. Developed Markets: The debt accumulation in developed markets was mostly concentrated in the US, Britain, Canada, and Sweden. The primary factors driving debt increases in developed markets include:
* Fiscal stimulus packages and increased government spending to support economic recovery from the COVID-19 pandemic.
* Lower interest rates and quantitative easing policies by central banks, which made borrowing cheaper and encouraged governments and corporations to take on more debt.
* A rebound in economic activity and corporate profits, which led to increased borrowing by businesses.

The rapid increase in global debt poses several key risks that policymakers must address to prevent a potential debt crisis:

1. Debt sustainability: High levels of debt can make it difficult for countries to service their debts, leading to defaults and financial instability. Policymakers should focus on improving debt sustainability by promoting economic growth, reducing budget deficits, and implementing structural reforms.
2. Interest rate risks: Rising interest rates can increase the cost of servicing debt, putting additional strain on government budgets and potentially leading to defaults. Central banks should manage interest rates carefully to balance economic growth and debt sustainability.
3. Currency risks: Emerging markets with high levels of foreign currency debt are particularly vulnerable to currency fluctuations. Policymakers should diversify their debt portfolios and implement measures to manage currency risks.
4. Fiscal risks: High levels of public debt can lead to fiscal risks, such as increased borrowing costs and reduced fiscal space for countercyclical policies. Policymakers should implement prudent fiscal policies, including maintaining primary surpluses and reducing public debt-to-GDP ratios.
5. Financial sector risks: High levels of debt can lead to financial sector risks, such as increased non-performing loans and bank runs. Policymakers should strengthen financial sector regulation and supervision to mitigate these risks.
6. Geopolitical risks: Geopolitical tensions can exacerbate debt risks by increasing borrowing costs and reducing economic growth. Policymakers should work together to address geopolitical risks and promote international cooperation.

To mitigate these risks, policymakers can take several steps:

1. Fiscal consolidation: Governments should implement fiscal consolidation measures, such as reducing budget deficits and public debt-to-GDP ratios, to improve debt sustainability.
2. Structural reforms: Policymakers should implement structural reforms to promote economic growth and reduce debt levels. These reforms can include improving the business environment, enhancing productivity, and promoting investment in infrastructure and human capital.
3. Debt management: Governments should improve their debt management strategies, including diversifying their debt portfolios, lengthening the maturity of their debt, and reducing their reliance on foreign currency debt.
4. International cooperation: Policymakers should work together to address global debt risks, including promoting international debt transparency, improving debt sustainability, and coordinating macroeconomic policies.
5. Financial sector regulation and supervision: Policymakers should strengthen financial sector regulation and supervision to mitigate financial sector risks associated with high levels of debt.



In conclusion, the rapid increase in global debt, particularly in 2024, highlights the urgent need for policymakers to address the mounting debt crisis and prevent a potential global economic meltdown. By taking proactive steps to mitigate the risks associated with high levels of debt, policymakers can help ensure a more stable and prosperous future for all.