Soaring Global Debt

In 2016 the global debt was approximately $220 trillion, 320% of global GDP. This ratio has continued to increase over the last 8 years, due to various factors such as increased social spending and COVID support funding. Borrowing has been left unchecked within economies where growing and borrowing costs were near zero. As of mid-2024, global debt reached $315 trillion, 333% of global GDP.

The World Bank predicts that those countries with debt-to-GDP greater than 77% (for an extended period) will see a slowdown in economic growth.

Japan was first to cross the 100% mark in 1996, then the 200% mark in 2009. Spain’s national debt decreased from 1996 to 2007 but leapt from 40% in 2008 to 100% in 2014. The US ratio hit the 77% marker in Q1 2009 and has now surpassed 122% with a whopping $35 trillion of debt. The interest rates have been serviceable, but with the federal funds rate at 4.75-5.00%, it is a large interest expense bill. Since 2014, US national debt has increased by 98.4% – mostly due to funding programs during COVID.

For the financial year ending March 2024, the UK government borrowed £122.1 billion, its debt-to-GDP ratio hovering around 100%. The government owes a total of £3.1 trillion, and hence, each 1% increase in interest rates lead to an extra £30 billion of interest payments per year. In July alone, the UK government paid £7 billion in interest payments.

Governments across the board are going to have to slow borrowing and decrease net debt, especially in the face of aging and shrinking populations. Reducing government spending and / or increasing taxes won’t be popular among the general population or businesses, but it might be the best way out.