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By: Pramod Chinthaka Peiris
February 26, World (LNW): Global borrowing climbed to an unprecedented US$ 348 trillion by the close of 2025, following an annual increase of almost US$ 29 trillion — the sharpest rise recorded since the borrowing spree seen during the pandemic years.
The figures were released on Wednesday in the latest Global Debt Monitor compiled by the Institute of International Finance (IIF).
Much of last year’s expansion was driven by sovereign borrowers. Governments accounted for more than US$ 10 trillion of the overall increase, with the United States, China and countries within the euro area contributing roughly three-quarters of the jump.
Analysts opine that persistent fiscal deficits and expansive public spending programmes have increasingly become the primary engines of the global debt cycle, replacing the pandemic-era surge led by households and private firms.
Despite the surge in nominal terms, global debt as a proportion of economic output edged slightly lower to around 308 per cent of the Gross Domestic Product (GDP) in 2025, largely attributed to advanced economies subject to moderate growth.
In contrast, debt burdens in emerging markets continued to rise, surpassing 235 per cent of GDP — a new record for that group of economies.
Government liabilities worldwide reached approximately US$ 106.7 trillion at year-end, compared with US$ 96.3 trillion twelve months earlier. Non-financial corporate debt rose to about US$ 100.6 trillion, while household borrowing increased more gradually to US$ 64.6 trillion.
Overall debt in advanced economies climbed to nearly US$ 231.7 trillion, with emerging markets accounting for about US$ 116.6 trillion — both historic highs.
The composition of borrowing has shifted notably. Private-sector debt ratios have eased from their pandemic peaks, yet sovereign borrowing continues to expand rapidly. Economists caution that this tilt towards public debt leaves national balance sheets more vulnerable to shifts in interest rates and investor sentiment.
January 2026 saw one of the busiest starts to a year for sovereign bond issuance, as governments moved swiftly to secure funding amid still-favourable market conditions. Corporate borrowers have also remained active, particularly in the United States, where investment-grade issuance has been buoyant, supported by large technology and industrial groups tapping capital markets.
The IIF noted that relatively accommodative financial conditions and strong investor appetite have encouraged issuance across high-yield bonds, leveraged loans and initial public offerings. It added that significant investment drives — including artificial intelligence-powered data infrastructure, energy transition projects and reinforced supply chains — could usher in a new wave of capital expenditure, sustaining elevated borrowing levels.
However, the cushion provided by economic growth appears limited. The International Monetary Fund projects global growth of about 3.3 per cent in 2026, with advanced economies expanding by roughly 1.8 per cent and emerging markets by just over 4 per cent. While stable, such rates may not be sufficient to materially reduce debt ratios if borrowing continues at last year’s pace.
Emerging markets face more than US$ 9 trillion in debt maturities this year, marking a record refinancing requirement, while advanced economies must roll over in excess of US$ 20 trillion in maturing bonds and loans.
For now, strong demand has kept markets orderly. Yet with fiscal deficits still wide and refinancing pressures mounting, the trajectory of global debt in 2026 is likely to hinge increasingly on governments’ spending decisions and investors’ continued willingness to absorb vast quantities of sovereign paper.
