In the last decade, global debt has reached record levels, exceeding 235 percent of the world’s GDP, according to IMF’s Global Debt Database (2025). The world’s debt burden is estimated at $ 251 trillion in 2025 (IMF 2025), a defining characteristic of the global economic landscape shaping market dynamic, geopolitical conflicts and government decisions.
Interest rates have increased at their fastest in 40 years, posing problems for firms, consumers and governments. The opportunities to borrow cheap are shrinking, which could affect markets, geopolitics and currencies.
According to the Institute of International Finance, total global debt surged by nearly $100 trillion since 2012, underscoring the scale of the challenge.
The pandemic prompted the largest peacetime fiscal expansion in modern history. Stimulus packages, health expenditures, and income support pushed debt ratios to record highs. Global fiscal stimuli in 2020 alone were estimated at nearly 10 percent of world GDP, an unprecedented intervention.
The debt composition reveals significant shifts. Public debt has increased steadily, reaching nearly 93 percent of global GDP. To finance deficits, pandemic recovery and infrastructure, governments in developed and developing economies borrowed heavily.
Private debt has declined below 143 percent of GDP, its lowest since 2015. This reflects household deleveraging and more cautious corporate borrowing, but it has not stopped the steady rise in sovereign liabilities.
The debt‑to‑GDP ratio of advanced economies is now around 110 percent, while emerging markets are close to 70 percent. What began as emergency borrowing has solidified into a structural debt burden, limiting government fiscal flexibility. Japan’s debt ratio exceeds 250 percent of GDP, while Italy remains above 140 percent, highlighting persistent fiscal strain in advanced economies.
The era of near-zero interest rates has ended. Central banks have aggressively raised borrowing costs to combat inflation, leading to debt servicing becoming the fastest-growing budget item globally.
The World Bank estimates that interest payments now consume over 10 percent of revenues in many middle-income countries.
Interest payments in the US are expected to surpass defence spending within the next decade. In Europe, governments struggle to balance social commitments with rising debt costs, shrinking fiscal space. Revenues lag behind obligations, creating fiscal strain.
France and Italy, with debt ratios above 110 and 140 percent, face acute pressures as social spending collides with debt service.
Emerging markets face significant challenges from tightening cycles too. Sri Lanka and Ghana were hit by outflows, devaluation, and dollar debt, pushing them into crises, while Pakistan and Zambia have also entered debt distress, showing how widespread the vulnerabilities have become.
With weak growth and rising borrowing costs, more defaults are expected. The IMF is increasingly being relied upon as a lender of last resort, but its resources are limited in the face of systemic pressures. The Fund has extended $150 billion in emergency financing since 2020, yet its capacity is finite compared to global needs.
Debt is now a significant factor in geopolitics, not just economics. China’s Belt and Road lending has created dependencies in Asia and Africa. The US benefits from the dollar’s dominance, easing deficit financing. Europe risks fragmentation if fiscal pressures differ among members, which makes debt sustainability increasingly crucial for geopolitical influence.
Debt diplomacy is vital in shaping alliances, as creditors leverage dependent economies to achieve strategic objectives.
Governments are facing difficult choices: they must decide between austerity measures, debt restructuring, inflationary financing, or rely on economic growth.
The days of easy borrowing are fading, and fiscal discipline will be crucial for economic power. Countries that can withstand pressure from capital markets will gain influence, while those dependent on constant borrowing will struggle.
In the present decade, power belongs to economies that can navigate high interest rates and master fiscal discipline. According to the OECD Global Debt Report 2025, countries that avoid ‘refinancing cliffs’ will maintain their sovereignty, while those that depend on continuous borrowing would see a decrease in their geopolitical clout.
In the years ahead, governments, institutions and markets will be tested. The outcome of this reckoning will define our future.
The next decade will be defined not just by military or technological competition, but also by the ability to handle debt responsibly and avoid crises.
