Overview of Global Debt Surge

Global Debt Soars to Record $337.7 Trillion, IIF Warns of Rising Fiscal Strains. Global debt has reached an all-time high of $337.7 trillion by the end of Q2 2025, according to the latest Global Debt Monitor released by the Institute of International Finance (IIF). This sharp rise – over $21 trillion in the first half of the year — comes amid a backdrop of easing global financial conditions, a weakening U.S. dollar, and more accommodative central bank policies across major economies. The IIF noted that this jump in debt mirrors the increase seen during the height of the COVID-19 pandemic in the second half of 2020, while Global Economy Slows Amid Inflation and Geopolitical Uncertainty. 

Leading Contributors to the Debt Spike

Countries including China, France, the United States, Germany, Britain, and Japan saw the largest increases in debt levels when measured in U.S. dollar terms. However, part of the rise was attributed to the weakening of the U.S. dollar itself, which has depreciated by 9.75% against a basket of major trading partners since the beginning of 2025.

Debt-to-GDP Trends & Key Country Movements

When looking at debt-to-GDP ratios — a critical indicator of a country’s capacity to service its debt – the report found significant increases in Canada, China, Saudi Arabia, and Poland. On the other hand, Ireland, Japan, and Norway witnessed a decline in their debt ratios. Globally, the overall debt-to-output ratio stands just above 324%, showing a slight downward trend. However, in emerging markets, the ratio has climbed to a new record of 242.4% following revisions to the May data.

Emerging Markets & Rising Liabilities

Total debt in emerging markets increased by $3.4 trillion in Q2 alone, bringing the total to over $109 trillion – the highest on record. These economies are also bracing for a potential liquidity crunch, with nearly $3.2 trillion in bond and loan redemptions due in the remainder of 2025. The Institute of International Finance flagged that many of these nations are seeing rising government debt levels, particularly in Chile and China, but also warned that financial market responses are more volatile in developed economies.

Advanced Economies Face Bond Market Volatility

The IIF pointed out that government debt has surged sharply in G7 nations, adding that 10-year bond yields in these countries are now nearing levels not seen since 2011. According to Emre Tiftik, the IIF’s Director of Sustainable Research, geopolitical instability and higher military spending are putting further strain on government finances. He also highlighted the sensitivity of bond markets, particularly in advanced economies, where investor sell-offs — often referred to as “bond vigilantes” – can quickly escalate fiscal pressures.

U.S. Debt Structure Raises Concerns

The report underscored structural vulnerabilities in the U.S. debt landscape. It noted that short-term borrowing now constitutes around 20% of total debt and 80% of all U.S. Treasury issuances. This over-reliance on short-term instruments could invite political interference, potentially undermining central bank independence if monetary policy is pressured to maintain low interest rates.

Call for Caution Amid Fiscal Fragility

The Institute of International Finance concluded by warning that countries such as Japan, Germany, and France could face deepening fiscal challenges in the months ahead. While debt accumulation remains a global concern, the report emphasized that the intensity of market reactions is currently more pronounced in mature economies. Policymakers, it stressed, must remain cautious, especially as global borrowing costs remain high and geopolitical uncertainties persist.

The record-setting global debt levels underline the urgency for stronger fiscal governance, long-term debt sustainability planning, and coordinated international responses to mitigate systemic risks in both emerging and advanced markets.