Market volatility has understandably increased sharply in the wake of the US and Israeli attacks on the Iran regime. The likelihood of further aftershocks will likely keep markets on edge as energy prices fluctuate wildly.
Against this dramatic backdrop, news from the Institute of International Finance (IIF) that nearly U$29 trillion was added to global debt stockpiles in 2025, bringing the total to a record $348 trillion, may have escaped wide attention.
Driven mainly by public sector borrowing, it marked the fastest increase in debt accumulation since the pandemic-era surge.
Debt stocks reached new highs across both advanced and emerging economies, underscoring the broad-based nature of the buildup, the IIF says in its latest Global Debt Monitor.
According to the IIF, the world appears to becoming locked into a kind of accelerating “debt trap”, which points to more borrowing and escalating real economic and financial risks ahead.
Concern centres on the fact that interests rates are expected to come under increased upward pressure from the inflationary impact of war in the Middle East, and the fact that much of the rise in debt is rooted in lending by lightly regulated non-bank financial institutions.
“A powerful mix of fiscal expansion, accommodative monetary policy, and lighter-touch regulatory simplification could drive further debt accumulation while heightening concerns about rising leverage and overheating in parts of the market,” the IIF cautions in the February 25 report.
It notes also that rising artificial intelligence-related investment is emerging as a new driver of corporate borrowing and capital market activity.
Government borrowing, especially for defence spending, accounted for more than $10 trillion of the overall increase in global debt last year. China, the US and the euro area were responsible for nearly three- quarters of the rise.
Europe’s defence push could lift government debt as a share of gross domestic product in the European Union more than 18 percentage points by 2035, “highlighting the need for greater private capital mobilisation”, the IIF says.
Emerging markets, meanwhile, face record refinancing needs of over $9 trillion this year.
Although debt-to-GDP ratios eased modestly in mature markets, the share still stands at 308%, while in emerging markets the ratio hit a fresh record above 235%.
“Looking ahead, global debt accumulation is set to remain robust amid rising government borrowing needs particularly,” the IIF says.
