A report released on May 6 by the International Institute of Finance (IIF) revealed that global debt reached a historic high of nearly $353 trillion by the end of March. U.S. borrowing expansion was a major driver behind the increase of over $4.4 trillion in global debt during the first quarter, marking the fastest growth rate since mid-2025 and the fifth consecutive quarter of expansion.

In terms of debt ratios, global debt currently stands at 305% of worldwide economic output, remaining largely unchanged since 2023. However, trends in debt ratios mirror those of debt levels—declining in mature markets while steadily rising in emerging economies.

Countries experiencing the largest increases in debt include Norway, Kuwait, Bahrain, and Saudi Arabia, each recording a rise of more than 30 percentage points in their debt-to-GDP ratios.

Foreign demand for U.S. Treasury securities has shown signs of stagnation as U.S. debt levels climb. According to the report, foreign investors maintained stable net purchases of U.S. government bonds this year, while increasing their allocations to Japanese and European sovereign debt.

Emre Tiftik, Director of Global Markets and Policy at IIF, noted that this reflects international investors' efforts to diversify their portfolios away from U.S. Treasuries. Although the $30 trillion-plus U.S. Treasury market currently faces no immediate risks, long-term projections indicate that U.S. government debt may be on an increasingly unsustainable path. Meanwhile, debt ratios in the eurozone and Japan are now declining modestly.

Looking ahead, the IIF forecasts that structural pressures—such as aging populations, rising defense spending, energy security and diversification, cybersecurity, and capital expenditures related to artificial intelligence—will continue to push government and corporate debt levels higher over the medium to long term.

So far, spillover effects from Middle East tensions have been limited beyond energy markets. Global risk appetite quickly recovered after the initial shock, with little indication of imminent stress in debt markets.

However, the IIF also cautioned that, over time, the conflict could further inflate the global debt burden, which is already near $353 trillion. Higher energy and food prices may force governments to borrow more funds at elevated costs.

Zhao Jian, President of the Xijing Research Institute, expressed particular concern about inflation. If economic growth driven by inflation fails to effectively balance with high interest rates—or worse, if stagflation occurs, characterized by rising debt, higher nominal interest rates due to inflation, slowing growth, and rising unemployment—debt could become a serious problem. Additionally, debt crises are often linked to stock market crises. In the early stages of a debt cycle, sufficient asset-backed expansion may mitigate risks. However, if severe stress emerges in stock market bubbles, the ability to absorb debt through rising asset prices would diminish, pushing debt into a high-probability zone of systemic risk.

Since the subprime mortgage crisis, the global economy has entered a super debt cycle driven by borrowing. At the same time, the Fourth and Fifth Industrial Revolutions, centered on information technology and artificial intelligence, continue to advance. Zhao Jian noted that while debt is expanding, supply constraints are also being continuously overcome. The risk of debt lies in defaults and non-performing loans, which are fundamentally problems on the asset side. After the subprime crisis, although debt has risen, technological progress and demand have also supported capital accumulation, asset returns, and real economic growth.