Global government debt to reach record high in 2024

Global government borrowing is expected to reach $12.3 trillion this year, driven by increased defense and other spending in major economies, coupled with high interest rates.

According to estimates by S&P Global Ratings, a 3% increase in government bond issuance across 138 countries will push the total debt stock to $76.9 trillion. This surge is fueled by the global financial crisis, the coronavirus pandemic, and now Europe’s need for increased defense spending.

Roberto Sifon-Arevalo, head of global bonds at S&P, told the Financial Times (FT) that major economies “continue to focus on fiscal policy to deal with crisis after crisis, resulting in a much more indebted government picture.”

Sifon-Arevalo added that debt servicing costs have increased significantly as bond yields have risen since the end of central bank bond-buying programs.

He noted that borrowing to finance higher spending “was fine and sustainable when you had the borrowing costs that you had before the pandemic, but now it poses a much bigger problem.”

The deterioration of public finances is a growing concern among major investors. Bond giant Pimco warned in December that it planned to reduce its exposure to long-term US debt, partly due to “debt sustainability questions.”

Billionaire investor Ray Dalio also warned that the UK risks entering a “debt death spiral,” where it needs to borrow increasingly more in a bond sell-off.

In the US, the world’s largest borrower, “wide fiscal deficits, high interest expenses, and significant debt refinancing requirements” will push long-term issuance to $4.9 trillion, S&P said. The figures do not include other forms of public borrowing, such as short-term Treasury bills and local government debt.

The organization expects the US government’s fiscal deficit to remain above 6% of GDP until 2026. However, it argues that the dollar’s status as the world’s de facto reserve currency continues to provide the US with “significant flexibility” in public finances.

China, the world’s second-largest borrower, is expected to increase its long-term issuance by more than $370 billion to $2.1 trillion as it spends heavily to stimulate its domestic economy.

Outside the G7 countries and China, borrowing in the rest of the world is expected to remain generally flat. According to S&P, the overall debt stock will reach 70.2% of global GDP. While this ratio has been steadily increasing since 2022, it remains below the 73.8% seen in 2020, when governments responded to the pandemic with large spending programs.

S&P also highlighted a significant deterioration in credit quality in a number of major economies since the global financial crisis. The share of the debt stock from borrowers with the highest AAA rating has decreased as countries such as the US and the UK have fallen from the top group.

S&P said the recent increase in government debt supply, combined with investor concerns about the economic outlook, has created “steeper yields and renewed investor concerns about weak fiscal positions in many advanced economies.”

Sifon-Arevalo said there is investor appetite to absorb debt issuance as bond funds’ assets under management have increased. However, he added that the cost of meeting the increased debt burden would hit other government objectives, such as infrastructure spending.

“The growth of fiscally more conservative [political] movements is not unrelated to the fact that you’ve seen this tremendous growth in fiscal deficits and debt,” Sifon-Arevalo said.