By Harshit, Washington D.C., September 27, 2025 — 01:50 AM EDT
Global debt reached a new record of $337.7 trillion at the end of the second quarter, driven by easing financial conditions, a softer U.S. dollar, and a more accommodative approach from major central banks, according to a quarterly report released Thursday.
Debt Surge Across Major Economies
The Institute of International Finance (IIF), a global financial services trade group, reported that global debt rose by over $21 trillion in the first half of 2025. China, France, the United States, Germany, Britain, and Japan recorded the largest dollar-denominated increases, though part of the rise reflected a weakening U.S. currency, which has dropped 9.75% since the start of the year against a basket of major trading partners.
“The scale of this increase was comparable to the surge seen in the second half of 2020, when pandemic-related policy responses drove an unprecedented buildup in global debt,” the IIF said in its Global Debt Monitor report.
Debt-to-GDP Ratios: Emerging Markets and Advanced Economies
Examining debt relative to national output, Canada, China, Saudi Arabia, and Poland saw the sharpest increases in debt-to-GDP ratios. Conversely, Ireland, Japan, and Norway experienced slight declines.
Globally, the debt-to-output ratio eased marginally but remained above 324%. Emerging markets, however, recorded a new high of 242.4%, following a downward revision in the previous report from May. Total debt in these economies reached more than $109 trillion, up $3.4 trillion in the second quarter alone.
Government Debt Pressures
Emre Tiftik, IIF Sustainable Research Director, highlighted that the debt increase is concentrated in government borrowing, especially among G-7 nations and China. He warned that rising military expenditures amid intensifying geopolitical tensions could further strain public finances.
Bond markets have responded more sharply in advanced economies, with G-7 10-year yields approaching levels not seen since 2011. The report also raised concerns about emerging markets facing nearly $3.2 trillion in bond and loan redemptions in the remainder of 2025, which could exacerbate fiscal pressures.
Risks and Market Reactions
The IIF cautioned that rising government debt ratios in mature economies could attract the attention of “bond vigilantes”—investors who sell bonds of countries deemed fiscally unsustainable. This risk is particularly acute in Japan, Germany, and France, where fiscal strains could intensify if market sentiment deteriorates.
In the United States, the report noted that short-term borrowing constitutes around 20% of total government debt, while 80% of Treasury issuance is in longer-term securities. Analysts warned that this reliance on short-term borrowing may increase political pressure on central banks to maintain low rates, potentially compromising monetary policy independence.
Outlook: Managing Debt Risks
While global debt remains elevated, the IIF emphasized that accommodative monetary policy and a softer dollar have so far limited immediate market disruptions. However, analysts stress that rising geopolitical tensions, coupled with fiscal strains in both advanced and emerging economies, could pose challenges if interest rates increase or market confidence falters.
“Government debt levels are at record highs, and while advanced economies have weathered the immediate pressures, vigilance is required,” said Tiftik. “Emerging markets, in particular, face a delicate balancing act between servicing debt and maintaining growth.”
Investors and policymakers will closely monitor bond market signals in the coming months, with particular focus on redemption schedules, central bank actions, and geopolitical developments that could affect global borrowing costs.
