Global debt hit an all time high of $307 trillion in the first half of 2023 - and developed economies like the US are piling it up at a faster pace

• Global debt hit an all-time high of $307 trillion in the first half of 2023, the Institute of International Finance reported.
• Global debt-to-GDP has resumed an upward trajectory in the same timeframe.
• But household debt ratios are at a two-decade low, providing some cushion to higher interest rates.

Global debt surged by around $10 trillion in the first half of this year, hitting an all-time record of $307 trillion, the Institute of International Finance reported.

Developed markets were responsible for about 80% of the new debt, with the US, Japan, the UK, and France contributing the largest shares. Meanwhile, debt in emerging markets was led by China, India, and Brazil.

"As higher rates and higher debt levels push government interest expenses higher, domestic debt strains are set to increase," the report said. "Yet, the international financial architecture is not adequately equipped to tackle unsustainable domestic debt levels."

This marks a $100 trillion gain from a decade prior, with rising debt becoming more of a concern as it increases further in relation to GDP. 

In the first half of 2023, global debt-to-GDP resumed its upward trajectory, reversing a decline that's been observed since 2021. The IIF projects the ratio to reach 337% by the end of this year. 

After the debt ratio peaked at over 360% two years ago, the sudden rise in inflation made it easier for governments to pay off existing liabilities. But today, governments and financial corporates are leading the rise in debt-to-GDP, the IIF wrote.

In the US, that's as the federal deficit is set to expand to $2 trillion by the end of this fiscal year. The rise in overspending has led to concern among leading commentators, with some noting that it could mean even higher interest rates. 

In the face of potentially tighter monetary policy, the US could find some relief in the household debt ratio, which hit a two-decade low in the first half of the year.

That's as lending for households and non-financial businesses has slowed, given inflation, tighter borrowing costs, and more restrictive banking standards.

"Should inflationary pressures persist in mature markets, the health of household balance sheets, particularly in the US, would provide a cushion for against further rate hikes," the IIF wrote.