Global debt surged by $7.5 trillion in the first quarter of 2025 to a record $324 trillion, according to data released Tuesday by the Institute of International Finance (IIF).
The staggering increase, driven largely by China, France, and Germany, underscores the scale of global reliance on borrowed capital—even as countries struggle to manage rising interest costs, slowing growth, and mounting economic uncertainty.
The increase was more than four times the average quarterly rise of $1.7 trillion since 2022, the IIF noted, pointing to a combination of foreign exchange factors and new borrowing. The depreciation of the U.S. dollar against major currencies also contributed to the higher dollar value of non-dollar denominated debt, but analysts say the sheer volume of new issuance reflects deeper structural pressures.
In emerging markets, total debt jumped over $3.5 trillion to a new high of $106 trillion in Q1 alone. China accounted for over $2 trillion of that increase, pushing its government debt-to-GDP ratio to 93%, with projections suggesting it could cross 100% by the end of the year. Brazil, India, and Poland also recorded significant increases. However, despite these sharp rises, the overall debt-to-GDP ratio for emerging markets excluding China actually fell below 180%, down from previous highs, thanks in part to stronger nominal GDP growth in some regions.
The global debt-to-output ratio remains just above 325%, edging slightly downward. But the headline figure masks more troubling signs. Emerging markets are now staring down a $7 trillion wall of maturing bonds and loans for the remainder of 2025. For developed economies, that number is closer to $19 trillion, both historic highs that threaten to test the resilience of global capital markets.
Who is The World Owing?
The rise in global debt has once again raised an old but persistent question: who is the world actually indebted to? While the record $324 trillion in global debt sounds like a singular burden, the answer lies in a complex and layered financial ecosystem, where countries, banks, investors, and institutions are simultaneously creditors and debtors in a tightly wound web of obligations.
In many developed economies, debt is increasingly held domestically. For example, much of Japan’s government debt is owed to its own citizens, banks, and institutions. The same is true to a lesser degree in Italy, where local banks and pension funds are heavily invested in government bonds. This internalized structure can provide short-term stability, since creditors are unlikely to flee en masse, but it also means that debt distress could trigger wider domestic financial crises.
In contrast, emerging markets are far more exposed to foreign lenders. Governments and companies in these regions often rely on borrowing from international investors, development banks, and hedge funds. This opens them up to the whims of global capital flows. A shift in sentiment, triggered by rising U.S. interest rates or geopolitical instability, can prompt capital flight, currency crashes, and debt-servicing difficulties.
The dominance of private creditors has added another layer of risk. Over the last decade, the share of developing country debt held by private entities—such as hedge funds, institutional investors, and foreign banks—has expanded rapidly. These lenders are far less patient than traditional multilateral institutions. When things go wrong, they are quicker to demand repayment or initiate legal action, as seen in the drawn-out debt restructuring battles in Argentina and Zambia.
Meanwhile, multilateral lenders like the IMF and World Bank continue to play a critical role, particularly in times of crisis, but their influence has waned. Their loans now make up a shrinking share of the total debt landscape, especially as developing nations turn to faster, albeit more expensive, sources of private credit. This shift has weakened global coordination in times of debt distress and diluted efforts to implement long-term fiscal reforms.
Another important but often overlooked creditor class includes foreign governments. The U.S. Treasury market, for instance, is heavily financed by overseas buyers—most notably China and Japan, which remain among the largest foreign holders of U.S. debt. However, even this dynamic is evolving. China’s appetite for Treasuries has waned in recent years as it seeks to insulate its economy from Western financial pressure and diversify its reserves.
Ultimately, global debt is less about nations owing money to external entities and more about a fragile network of cross-border interdependence. The global economy, in essence, owes itself, though unevenly. Some countries, mostly advanced economies, lend far more than they borrow. Others, particularly developing nations with current account deficits and weaker institutions, are net debtors—vulnerable to shifts in global financial conditions they cannot control.
However, this intricate web comes with real consequences. If emerging markets begin to default in large numbers, the impact won’t stay local. Defaults can undermine confidence across asset classes, trigger contagion in global bond markets, and provoke recessionary pressures in economies already dealing with tight monetary conditions. Similarly, a surge in U.S. debt issuance, driven partly by Trump’s renewed push for tax cuts, could force yields higher globally, increasing borrowing costs everywhere from Lagos to London.
Tariffs, pitched by the Trump administration as a fix for America’s fiscal gap, have only added to the challenge. While a weaker dollar has temporarily cushioned some emerging markets, the IIF warns that prolonged policy unpredictability could prompt foreign retaliation and reduce global trade volumes, further straining public finances.
