Global debt hits record $365 trillion as interest costs outpace AI, defense and clean energy spending

Global debt has crossed $365 trillion for the first time, and the bill for simply servicing it now dwarfs what humanity spends on artificial intelligence, defense, and clean energy — combined. The Institute of International Finance released that finding Wednesday in its latest Global Debt Monitor, and the numbers landed alongside warnings from the IMF chief, the OECD, and the IIF's own economists that governments are trapped in a cycle they lack the political will to break.

Total debt across governments, households, financial institutions, and non-financial corporations in more than 100 economies rose by more than $10 trillion in the first half of 2026 to a record $365.5 trillion, according to the IIF. That marked the sixth straight quarterly rise, yet the pace was well below half the $21 trillion accumulated in the same period a year before, held back by higher borrowing costs, surging energy prices, and volatility tied to the conflict with Iran.

Emerging markets drove most of the new borrowing, adding $6.5 trillion to reach more than $110 trillion, led by China. Advanced economies accumulated debt more slowly, reaching $255 trillion. Yet it is the interest burden on advanced economies that has attracted the most concern: over the past year, those countries paid more than $3.3 trillion in interest on internationally traded government bonds — a sum exceeding estimated global spending on AI ($2.6 trillion), defense ($3.1 trillion), or clean energy ($2.3 trillion).

As benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed.— Institute of International Finance

More than $4.8 trillion of the new borrowing came from China alone, lifting its total outstanding debt to $72.5 trillion, according to calculations based on IIF data. The rise reflects mounting fiscal pressure from declining land-sale revenue, a prolonged real estate downturn straining local government finances, and corporate debt growth amid weak domestic demand. Over the same six months, US total debt climbed $3.5 trillion to $111.8 trillion, propelled mainly by the financial sector and government borrowing, with federal debt reaching 122.3 percent of GDP in the second quarter.

According to the US Treasury Department, August marked the first time US federal debt crossed the $40 trillion threshold. Long-term US Treasury yields have risen to their highest point since 2007, and for a second consecutive month in July, total foreign government holdings of US Treasury debt declined, with Japan and China — two of the three largest creditors — both reducing their positions, according to the latest official data.

US securities remained well bid despite heightened volatility and speculation, partly because alternative markets lack comparable depth and liquidity. The key question is what could trigger an inflection point in dollar demand.— Institute of International Finance

The global debt-to-GDP ratio stands at around 310 percent — about 25 percentage points below its early-2021 peak. But the IIF cautioned that this apparent improvement is largely an illusion, driven by inflation lifting nominal GDP rather than any genuine reduction in debt burdens. Average government borrowing costs across Group of Seven economies are at their highest since mid-2008, and annual interest expenses are nearly 85 percent higher.

What makes this debt wave different from earlier ones, according to IIF director of global markets and policy Emre Tiftik, is that it was not triggered by a single crisis. The 2008 financial crash and the Covid-19 pandemic each produced sharp, identifiable surges. This time the driver is structural.

This time around, there is no specific crisis. This is all driven by a super-cycle that is driven by healthcare, energy, AI, and IT and defence-related spending.— Emre Tiftik, Director of Global Markets and Policy, IIF

Debt is here to stay.— Emre Tiftik, Director of Global Markets and Policy, IIF

Four major economies — the US, Japan, France, and the UK — were identified by the IIF as facing "persistently large deficits and rising interest expenses — challenges long associated with debt-distressed emerging market sovereigns." Government bond yields in all four countries have reached their highest levels in over a decade, a development the IIF attributed to deepening investor unease over rising interest rates, persistent energy cost pressures, tepid economic growth, and elevated fiscal spending.

The political dimension of the problem drew explicit attention. The IIF warned that debt has become a political issue, generating a "vicious cycle between elections and short-term quick fixes, and a long-term vulnerability as the marginal utility of higher debt diminishes." Governments facing voters have little incentive to impose the fiscal discipline that economists say is necessary.

IMF Managing Director Kristalina Georgieva, speaking to the BBC this week, used stark language to describe the pattern of successive crises pushing debt higher.

Shocks to the global economy were pushing debt levels up like a staircase not to heaven.— Kristalina Georgieva, Managing Director, IMF

There are these two things that must be done: bring debt levels down, put fiscal consolidation as a priority, and make sure that the central banks deliver on their mandate for price stability. It is impossible to stress strongly enough how critical it is to get the courage to take the steps that are necessary. These are politically tough steps to take, but necessary steps to take.— Kristalina Georgieva, Managing Director, IMF

In its own economic outlook published Wednesday, the Paris-based OECD said that climbing bond yields underscored the urgency of stronger efforts to "contain and reallocate government spending, improve public sector efficiency and strengthen revenues," and urged reforms aimed at securing longer-term debt sustainability and preserving governments' capacity to respond to future shocks.

One emerging pressure point is AI-related corporate borrowing. US non-financial corporate debt reached $24 trillion, with private credit loans now accounting for more than 5 percent of that total, up from roughly 1 percent in 2014. The IIF found no clear sign yet that AI-linked borrowing has displaced US Treasuries or drawn capital away from emerging markets, but cautioned that a sustained wave of long-dated AI-related corporate debt could eventually push long-term Treasury yields higher.

Emerging markets face their own near-term pressure: more than $3.5 trillion in debt is coming due for repayment in 2026, a record amount. Emerging-market sovereign Eurobond issuance is running at its highest pace on record, with Mexico, Saudi Arabia, Poland, and Turkey leading the way, while a softer dollar and continued carry trade have supported demand for local-currency assets.

The IIF's Global Debt Monitor tracks total debt — government, household, financial, and non-financial corporate — across more than 100 mature and emerging market economies. The $365.5 trillion figure is the broadest available measure of global indebtedness and is distinct from government debt alone.

Why it matters — When governments spend more servicing debt than the world invests in AI, defense, and clean energy combined — and face political incentives to keep borrowing — the risk is that rising interest costs crowd out everything else, leaving less capacity to respond to the next crisis.

Reported by intellinews.com, qz.com, stockanalysis.com, cnbc.com, scmp.com, thestandard.com.hk