International Institute for Finance: Global debt soars to record $307T in first half of 2023

Sept. 20 (UPI) -- Global debt soared by $10 trillion to a record $307 trillion in the first half of 2023, driven by higher interest rates with the United States, Japan, Britain and France responsible for four-fifths of the rise, according to a new finance industry report.

The increase means debt worldwide is now $100 trillion more than it was in 2013, pushing up the global debt-to-GDP ratio to 336%, from 334% in the October to December period in 2022, the Washington-based International Institute for Finance said in its latest research published Tuesday.

The higher interest rates deployed by central banks to combat inflation fed directly through to government borrowing, dramatically increasing the amount of interest governments have to pay on existing and new borrowing although it remains well below levels of a decade ago, the institute said.

"Over 80% of the debt buildup came from mature markets in H1 2023, with the U.S., Japan, the U.K., and France registering the largest increases. In emerging markets, the rise has been more pronounced in China, India, and Brazil," the report said.

Paradoxically, rising inflation actually helped hold down the debt-to-GDP ratio by allowing many governments and multinational corporations to inflate away their liabilities since the start of 2022, although the IIF now believes debt-to-GDP is climbing again.

However, with interest on domestic-issued debt accounting for more than 80% of emerging market governments' total interest costs, debt levels are at "alarming" levels in many countries amid a global financial architecture ill-prepared to manage risks stemming from unsustainable domestic debt.

All this comes amid a credit squeeze as higher inflation and borrowing costs, and tighter lending standards have significantly curbed the provision of credit by banks.

Even as borrowing by government and financial institutions rose, economic headwinds, including tighter funding conditions, saw a sharp slowdown in bank lending to households and non-financial businesses.

IIF said that the gap was being plugged to some extent by private credit markets which are continuing to grow, even as they face increased scrutiny from regulators.

"Notably, in the U.S., the continued expansion of private credit markets has offered a buffer for those businesses that have faced more stringent bank lending standards following the U.S. regional banking stress earlier this year," said the report.

Consumer debt burdens remained "largely manageable" in mature markets with the first half household domestic debt ratio falling to a 20-year low, IIF said, allowing additional room for further central bank monetary policy tightening if inflationary pressures do not subside.

The report comes a day before regulators on both sides of the Atlantic -- the U.S. Federal Reserve in Washington and the Bank of England -- meet to decide whether to hike, hold or cut their respective interest rates.

The Fed is expected to leave its benchmark rate unchanged from its current 5.25-5.5% level but it is unclear what Britain's central bank will do with its 5.25% rate amid anemic GDP growth and stubbornly high inflation.