Global debt hits record $313 trillion in face of central bank tightening

WASHINGTON (TND) – The world’s debt problem got a lot worse in 2023, according to a new Institute of International Finance report, hitting a fresh record of $313 trillion.

About a decade ago, that figure stood at $210 trillion.

The IIF’s latest Global Debt Monitor revealed a $15 trillion spike at the end of last year, largely driven by the United States, France and Germany.

Government budget deficits are still running well above pre-pandemic levels, and an acceleration in regional conflicts could trigger an abrupt surge in defense spending,” the report said.

This week, the U.S. national debt reached $34.3 trillion, accounting for both debt held by the public and intragovernmental holdings. America’s debt burden has sparked conversations about raising the retirement age and increasing taxes on corporations and the wealthy.

Post-pandemic interest rate increases by central banks around the globe have exacerbated the cost of servicing debt, impacting governments and private citizens.

At its latest meeting, the Federal Reserve held the benchmark interest rate between 5.25% and 5.5% and signaled rate cuts are possible in the coming months if inflation cools.

Clearly this situation’s very painful for a lot of people. The interest rates are higher, so if you’re a young person in almost any advanced economy, forget about buying a house,” Harvard University Chair of International Economist Kenneth Rogoff said recently at the World Economic Forum in Davos.

The longer rates stay elevated, the more difficult it will become–especially for developing economies–to pay down debt. According to the World Bank, governments in Sub-Saharan Africa already pay 7.6% of GDP on interest payments alone.

“For comparison, what they spend on education and health care together is 5.6%, so 7.6% is a lot,” World Bank Group president Ajay Banga said at a joint seminar with the International Monetary Fund in October. “It crowds out the ability of those governments to be able to put money to work for human capital, for climate, for infrastructure, for the things they need to put their country on the right pathway for the coming years.”

Another risk the IIF outlined was geopolitical turbulence.

“Deepening geoeconomic fragmentation, geopolitical conflicts and rising trade protectionism may lead to more frequent and abrupt changes in global risk sentiment,” the report said. “Any escalation of these risks could exacerbate debt vulnerabilities.”