Global debt has soared to a historic $337.7 trillion by the end of the second quarter of 2025, according to a new report by the Institute of International Finance (IIF). The rise, fueled by looser financial conditions, a weakening U.S. dollar, and accommodative policies from central banks, marks an increase of more than $21 trillion in just six months. Major economies, including China, the U.S., France, Germany, Britain, and Japan, posted the largest jumps, intensifying concerns over global fiscal stability.
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Record-Breaking Debt Levels
The IIF report revealed that the surge in global debt during the first half of 2025 was comparable to the pandemic-driven spike of late 2020. Debt accumulation accelerated as governments expanded fiscal policies, and borrowing costs adjusted amid softer financial conditions. The unprecedented increase underscores the fragility of global balance sheets and the risks of sustained borrowing.
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Major Economies Drive Increase
China, the United States, France, Germany, the United Kingdom, and Japan were the primary contributors to the surge in U.S. dollar terms. The IIF highlighted that part of this increase reflects the 9.75% decline in the dollar’s value against a basket of major currencies since January, inflating debt figures when converted into dollars. These nations remain at the core of the global debt escalation.
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Debt-to-GDP Ratios Shift
Debt-to-GDP ratios painted a mixed picture across economies. Canada, China, Saudi Arabia, and Poland registered the sharpest increases, raising concerns about repayment capacities. In contrast, Ireland, Japan, and Norway recorded declines. Globally, the debt-to-output ratio edged slightly lower to 324%, though emerging markets saw a new record at 242.4%. Total debt in these economies rose by $3.4 trillion, pushing the figure above $109 trillion for the first time.
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Rising Military Expenditure
Emre Tiftik, IIF’s Sustainable Research Director, warned that geopolitical tensions and rising military budgets are straining government finances. “The scale of this increase was comparable to the surge seen in H2 2020, when pandemic-related policy responses drove an unprecedented buildup in global debt,” the IIF stated. Tiftik emphasized that much of the increase is concentrated in government debt, particularly in G7 economies and China.
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Bond Market Reactions
Bond markets are showing signs of strain as advanced economies face harsher reactions compared to emerging markets. Yields on G7 10-year government bonds are hovering near their highest levels since 2011, reflecting investor skepticism. The IIF noted that while government debt ratios climbed in emerging markets like Chile and China, market pressures have been more pronounced in mature economies.
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Redemption Challenges Ahead
Emerging markets are bracing for nearly $3.2 trillion in bond and loan redemptions through the remainder of 2025, setting a record high. The IIF cautioned that fiscal strains could intensify in countries such as Japan, Germany, and France. It warned of the risk posed by “bond vigilantes,” investors who may offload bonds of nations perceived as fiscally unsustainable.
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U.S. Debt Concerns
The report raised fresh alarms over U.S. debt structure, noting that short-term borrowing now accounts for about 20% of overall debt and 80% of Treasury issuance. The IIF warned that this reliance could heighten political pressure on the Federal Reserve to maintain low interest rates, threatening the central bank’s monetary independence at a critical time.