Global debt climbed to a record $348 trillion at the end of 2025, after nearly $29 trillion was added over the year in the fastest yearly build-up since the pandemic surge, the Institute of International Finance said in its latest Global Debt Monitor.
The jump in 2025 is no longer linked to the post-pandemic effects but rather to strategic drivers, mainly the massive investments in artificial intelligence and plans to enhance national security and defense, particularly in Europe.
Increased military spending in Europe is projected to add over 18 percentage points to European Union government debt-to-GDP ratios by 2035.
The report said the US is leading the trend with a government debt rising to 122.8% of GDP, making Washington, Beijing and the euro zone responsible for roughly three-quarters of the jump.
Meanwhile, the non-financial corporate sector witnessed a technological arms race in AI, pushing its debt ratio to 77.4%, while household and financial sector debt remained relatively stable at 71.7% and 74.1%, respectively, according to the report.
In Asia, China’s government debt approached 96.8%, while corporate debt reached 138.1%.
Japan topped the list of the most indebted nations. Latest data shows the country’s debt has reached 199.3% of its GDP in 2025.
Regarding the Middle East, the report observed variations in fiscal positions. Saudi Arabia’s government debt maintained a robust financial positions with a debt not exceeding 28.3% debt to GDP.
Bahrain registered a high sovereign debt that stood at 142.5%, while the Emirates demonstrated a balanced debt with non-financial corporates representing 56.2% of GDP. Kuwait recorded the lowest sovereign debt ratio in the region at 7.3% although the total debt of its non-financial corporates reached 83.2% of GDP.
Meanwhile, the IIF report warned that emerging markets face record refinancing needs of over $9 trillion in 2026, though supportive funding conditions and carry trade demand should help contain risks in the near term.
The report cited high debt ratios in countries such as South Africa (79.4%), Argentina (75.8%), and Egypt (74.8%).
It concluded that global financial stability remains contingent on the ability to balance growth ambitions with mounting debt burdens, amid continued reliance on interest rate swaps as a temporary tool to manage financial pressures in these markets.
