The cost of borrowing is causing global debt to reach record levels

The global debt reached a new record of $313 trillion, or £248 trillion. This is due to higher interest rates that drive up borrowing costs.

According to the Institute for International Finance (IIF), borrowers took on $15 trillion more in 2023. This means that the world’s total debt is up by over $100 trillion since the last decade.

The government debt alone reached $89.9 trillion. This is up from $71 billion at the time of the pandemic, and less than 33 trillion dollars before the financial crisis.

The cost to service these debts has risen dramatically in many parts of the world.

Jan Friederich, Fitch Ratings’ senior analyst, said that higher borrowing costs represent “a substantial change in the environment from… extremely low rates to rates much higher right now”.

At the launch of IIF’s Global Debt Monitor, he stated that “average interest expenses relative to revenues are on a substantial uptrend”, particularly for heavily-indebted countries in the rich world.

The average debt interest payment for governments in Western Europe and North America is on track to increase from 3.2pc last year to 4pc next, an increase of over one quarter.

The US has also been shaken by the soaring debt, with the US national debt hitting a record of $34 trillion dollars in January.

The United States has avoided worrying about its debt ballooning because of the dollar’s position as the world reserve currency. This means that there are always buyers of the bonds.

The IIF’s Global Debt Monitor said that the pain would grow as long as interest rates were kept high. However, the economy has managed the impact well overall.

The statement read: “Despite growth below potential and rising interest costs, the global economic is resilient to volatility of borrowing costs.”

The financial markets expect that central banks will start reducing interest rates once again, as inflation has decreased.

If prices continue to rise, the IIF is concerned that the outcome will be high interest rates. “This would negatively impact the outlook of global debt markets by increasing borrowing costs.”

Not only is it a risk. IIF stated: “Deepening fragmentation of the geoeconomic system, increasing geopolitical conflict and rising trade protectionism may lead to more frequent changes in risk sentiment.

Inflation and economic growth have reduced the amount of debt relative to GDP. The debt has fallen to just under 330pc, compared to its peak in 2021 of over 360pc.

Debt burdens rose in emerging economies led by China, India and Russia, while debt ratios dropped globally.

Since Covid’s attack, China’s debt to the government has increased by an equivalent of a quarter of its GDP. The country’s household and business debts are also at an all-time high.

China has reached levels of debt that are comparable to those in the rich world, even though it is still a country with a middle income, slowing economic growth, a crisis in the construction sector, and a shrinking populace. This raises the possibility that the debt burden could become a serious threat to the economy.

Friederich says his agency pays attention to China’s weak points.

He said: “We are concerned about the trend slowdown, the relative lack of success the government has had in stabilising the economic situation in relation to the property issue, as well as the high level of leverage in the economy.”