IIF: global debt soars to%336of GDP to$307 trillion for the 1st time

The Institute of International Finance (IIF) announced that global debt has soared to a fresh record of $307 trillion (£248 trillion) as governments and financial services companies fuel a jump in borrowing as borrowers added $10 trillion to the debt mountain in the first half of 2023 that total debts now amount to % 336 of global GDP، an increase compared with the second half of 2022، in the first increment in two years، as the surge in inflation has eaten away the relative value of debts across much of the world.
The Institute of International Finance (IIF) affirmed that global debt hit a record $307 trillion in the second quarter of the year despite rising interest rates curbing bank credit، with markets such as the United States and Japan driving the rise.

IIF: global debt climbed by $10 trillion last half

The Institute of International Finance (IIF) indicated that global debt climbed by $10 trillion last half، resuming its upward march as a share of the world economy after falling for close to two years as inflation surged that liabilities are up a staggering  $100 trillion over the past decade.
The Institute of International Finance (IIF)، representing the world’s largest international banks and financial institutions said in a report released Tuesday that the US، Japan، the UK and France led the latest advance with governments and financial services companies fuel a jump in borrowing.

US government debt hit a record $33 trillion

The Institute of International Finance (IIF) stated that  rich world economies have driven the boom in borrowing  as US government debt hit a record $33 trillion this month amid heavy borrowing and spending programmes from the Biden administration.
The Institute of International Finance (IIF) explaied in its Global Debt Monitor that over % 80  of the debt buildup came from mature markets where the global debt-to-GDP ratio has resumed its upward trajectory in H1 2023،  with the US، Japan، the UK، and France registering the largest increases، following seven consecutive quarters of decline، while in emerging markets، the rise has been more pronounced in China، India، and Brazil.

Hhigh inflation، higher borrowing costs، and tighter lending standards curtailed bank credit creation

The Institute of International Finance (IIF) revealed that high inflation، higher borrowing costs، and tighter lending standards have significantly curtailed bank credit creation in recent months but expansion of private credit markets continues despite increased regulatory scrutiny، while consumer debt burdens remain largely manageable in mature markets، allowing additional room for further central bank tightening should inflationary pressures persist. 

As higher rates and higher debt levels push government interest expenses higher، domestic debt strains are set to increase، however، the international financial architecture is not adequately equipped to tackle unsustainable domestic debt levels، but heightened global efforts to reform multilateral development banks to scale up climate finance should accelerate the expansion of ESG debt markets، added the Institute of International Finance (IIF).

IIF: global debt-to-GDP ratio has resumed its upward trajectory

The Institute of International Finance (IIF) affirmed that the global debt-to-GDP ratio has resumed its upward trajectory in the first two quarters of this year، after witnessing declines of seven consecutive quarters، now hovering around 336%، up from 334% in Q4 2022، as the sudden rise in inflation was the main factor be-hind the sharp decline in debt ratio over the past two years، allowing many sovereigns and corporates to inflate away their local currency liabilities. 

With wage and price pressures moderating (though not expected to return to target levels)، the Institute of International Finance (IIF) foresees the global debt ratio to surpass 337% by the end of the year as the rise in debt ratios this year was more evident among governments and financial institutions، in contrast، prevailing macro head-winds، including tighter funding conditions، have led to a marked deceleration in bank credit expansion to households and non-financial businesses. 

Continued expansion of private credit markets in U.S 

The Institute of International Finance (IIF) assured that the continued expansion of private credit markets in the U.S. has offered a buffer for those businesses that have faced more stringent bank lending standards following the U.S. regional banking stress earlier this year، and debt in the UK hit $12.9 trillion، a rise of $330bn in the first half of the year، while the household debt-to-GDP in emerging markets remains above pre-pandemic levels، largely due to China، Korea، and Thailand. 

In contrast، the household debt ratio in mature markets has dropped to its lowest level in two decades in H1 2023 as  inflationary pressures persist in mature markets، the health of household balance sheets، particularly in the U.S.، would provide a cushion for against further rate hikes but EM domestic debt strains cloud the outlook as inter-national funding costs stabilize at higher levels، government debt in emerging markets (ex-China) has resumed its up-ward trend in H2 2022، registering a slight increase to 57% of GDP. 

Modest uptick in Euro-bond issuance

This has coincided with a modest uptick in Euro-bond issuance activity، notably، Saudi Arabia، Poland، and Türkiye were the top borrowers from international markets، reflecting their substantial external borrowing needs، while  this year has seen a sharp decline in sovereign borrowing from domestic markets، with issuance trailing 20% behind last year، according to the Institute of International Finance (IIF). 

However، given that interest expenses on local currency debt now make up over 80% of EM governments’ total interest costs، domestic government debt levels are at alarming levels in many countries and most worryingly، the global financial architecture is not adequately pre-pared to manage risks associated with strains in domestic debt markets; having a market-based framework to address unsustainable domestic debt levels could support initiatives to mobilize resources for development finance، including climate finance.

IIF: prolonged weakness in international capital flows into EMs

The Institute of International Finance (IIF) demonstrated that the prolonged weakness in international capital flows into EMs (ex-China)، which has persisted for over a decade، remains a substantial challenge when seeking to mobilize much-needed international capital for climate action and these efforts would be helped by strengthening the dialogue between countries and their investors to develop new projects، funding mechanisms، and mainstream best practices.

The Institute of International Finance (IIF) concluded that higher rates and higher debt levels push government interest expenses higher، so، domestic debt strains are set to increase at a time of rising interest rates، pushing up governments’ debt servicing costs around the world، that government debt interest payments globally over the past 12 months hit $3.5 trillion، a record high، and household debts around the world edged down from $57.9 trillion to $57.7 trillion، as banks tightened up lending and this represents a fall from % 62.3 to 61.9 of GDP.