The latest figures from the Institute of International Finance (IIF) show that total debt reached a record USD 365.5 trillion by the end of June, with emerging markets accounting for most of the increase.
The increase is particularly significant because borrowing costs are no longer at the exceptionally low levels that characterised much of the period following the global financial crisis and the Covid-19 pandemic.
Government bond yields have risen sharply in several major economies, increasing the cost of servicing existing debt and making new borrowing pricier.
Emerging markets drive the increase
Emerging markets were responsible for roughly USD 6.5 trillion of the increase during the first six months of the year, raising their combined debt above USD 110 trillion.
China was the biggest contributor. Its overall debt rose by more than USD 4.8 trillion, taking the country’s total outstanding debt to about USD 72.5 trillion, according to calculations based on IIF data.
The increase reflects borrowing across governments, financial institutions, companies, and households rather than a single source of leverage.
China’s government debt reached about 103.3% of GDP, up from 95% a year earlier, while non-financial corporate debt reached 144.6% of GDP. Household debt, by contrast, declined slightly to 58.7% of GDP.
Other emerging economies are also experiencing divergent trends.
Brazil’s government debt rose to 97.3% of GDP from 89.5%, while India’s government debt ratio was broadly stable at 77.5%. India’s corporate debt, however, increased to 48.4% of GDP from 46.2%.
That divergence is relevant for investors because debt sustainability depends not simply on the absolute amount borrowed but also on the currency in which it is denominated, the maturity profile, borrowing costs, and the ability of an economy to generate growth and tax revenues.
Debt ratio masks underlying pressure
Initially, the global debt picture may seem less alarming when compared to the size of the world economy.
The global debt-to-GDP ratio is around 310%, according to the IIF, roughly 25 percentage points below its peak in early 2021. But the organisation cautions that the improvement does not necessarily represent genuine deleveraging.
Higher inflation has lifted nominal GDP, making debt appear smaller relative to economic output even as the absolute stock of debt continues to rise. The IIF describes the situation as an “illusion of stability,” arguing that the underlying vulnerabilities remain.
The distinction is important for financial markets. A country can sustain a high debt ratio when economic growth, inflation, and borrowing costs are favourable. The same debt burden becomes more difficult to manage when interest rates remain elevated and economic growth slows.
That is increasingly relevant as investors demand higher returns for holding long-term government bonds.
The refinancing problem
The biggest near-term issue for many borrowers is not simply the amount of debt outstanding but when it has to be refinanced.
The Organisation for Economic Co-operation and Development warned in its 2026 Global Debt Report that higher long-term borrowing costs have encouraged governments and companies to issue more short-term debt. While shorter maturities can reduce immediate interest costs, they leave borrowers more exposed to refinancing risks when existing securities mature.
The OECD estimates that governments and companies will borrow about USD 29 trillion from bond markets in 2026, 17% more than in 2024 and twice the level of a decade earlier.
OECD governments are expected to use about 78% of their borrowing this year to refinance existing debt instead of financing new spending.
This creates a potentially difficult feedback loop.
If bond yields rise, refinancing becomes pricier. Higher interest payments increase budget deficits, forcing governments to issue more debt. Increased issuance can, in turn, place additional pressure on bond markets.
The IIF’s warning about a “vicious cycle” is therefore centered on the interaction between fiscal policy and financial markets rather than simply the size of the global debt number.
Governments face competing demands
The pressure comes at a time when governments are being asked to spend more, not less.
Defence budgets are increasing amid geopolitical tensions, while governments are also supporting energy security, infrastructure, industrial policy, and the development of artificial intelligence.
The OECD has separately warned that AI investment could generate substantial additional corporate borrowing. It estimates that nine major AI companies could issue about $1.2 trillion of corporate bonds between 2026 and 2030 to finance capital expenditure.
That creates another tension for markets: investment financed through debt can support future productivity and economic growth, but it also increases leverage before those expected returns are realised.
The IIF has similarly highlighted the increasing importance of government spending priorities and the political difficulty of reducing deficits.
Developed markets are not immune
Although emerging markets contributed most of the latest increase, advanced economies remain at the center of the debt challenge.
Government bond yields in the US, Japan, France, and the UK have reached levels not seen for more than a decade, according to recent reporting on the IIF data. Rising yields reflect a combination of inflation concerns, higher expected government borrowing, and investors demanding greater compensation for holding long-dated debt.
The cost is increasingly visible in government budgets.
The IIF estimates that annual interest expenses for G7 governments have risen by about 85% year on year, reaching their highest level since the global financial crisis.
For investors, the situation changes the relationship between fiscal policy and bond markets. Governments that once benefited from exceptionally cheap borrowing now face a world where refinancing costs can materially affect spending decisions.
Markets remain resilient—for now
The debt figures do not automatically signal an imminent financial crisis.
Debt markets have remained relatively resilient despite the increase in leverage. The OECD says global bond markets have continued to provide financing even as geopolitical tensions, trade disputes, and uncertainty have increased.
The concern is what happens if several pressures converge: weaker economic growth, persistent inflation, higher long-term yields, and large volumes of debt requiring refinancing.
That combination could expose borrowers that currently appear stable but have limited fiscal or financial buffers.
The latest increase therefore represents less a single crisis point than a structural challenge for the global financial system.
The world has accumulated an unprecedented amount of debt, and much of it can still be serviced while growth and financial markets remain supportive. But the margin for error is becoming narrower.
As governments compete for capital alongside companies investing in AI, defence, infrastructure, and energy security, the cost of borrowing is likely to become an increasingly important constraint on economic policy.
The USD 365 trillion figure is therefore more than a record. It is a measure of how heavily the global economy now depends on continued access to affordable financing—and a reminder that when that financing becomes pricier, the consequences can extend from government budgets and corporate balance sheets to bond markets, currencies, and global growth.