The world’s governments are drowning in debt, with mounting interest costs now outpacing spending on some of the most critical sectors of the global economy.
Global debt climbed by $10 trillion in just the first half of the year, surpassing $365 trillion, according to new research published by the Institute of International Finance.
The IIF warned that governments are trapped in a “vicious cycle between elections and short-term quick fixes, and a long-term vulnerability as the marginal utility of higher debt diminishes.”
Yields on medium- and long-term government bonds across major economies have hit their highest levels in more than a decade, reflecting deep investor unease over rising interest rates and tepid economic growth.
The U.S., Japan, France, and the U.K. are now facing “persistently large deficits and rising interest expenses — challenges long associated with debt-distressed emerging market sovereigns,” the Washington-based group said.
Advanced economies paid over $3.3 trillion in interest on internationally traded government bonds last year, surpassing global spending on AI at $2.6 trillion, defense at $3.1 trillion, and clean energy at $2.3 trillion.
The IIF cautioned that “as benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed.”
The Paris-based Organisation for Economic Co-operation and Development added in its own economic outlook that rising bond yields demonstrated the urgent need to “contain and reallocate government spending, improve public sector efficiency and strengthen revenues.”
The OECD further stressed that structural reforms are essential to ensure longer-term debt sustainability and preserve governments’ capacity to respond to future economic shocks.
International Monetary Fund chief Kristalina Georgieva told the BBC that global shocks were “pushing debt levels up like a staircase not to heaven,” sharply criticizing the lack of decisive government action worldwide.
Georgieva called for a dual response, saying “there are these two things that must be done: bring debt levels down, put fiscal consolidation as a priority, and make sure that the central banks deliver on their mandate for price stability.”
She left little room for ambiguity about the stakes, stating: “It is impossible to stress strongly enough how critical it is to get the courage to take the steps that are necessary. These are politically tough steps to take, but necessary steps to take.”
