Global Debt Monitor

In Search of Sustainability
September 19th, 2023
Emre Tiftik, Director, Sustainability Research, etiftik@iif.com
Khadija Mahmood, Economist, kmahmood@iif.com
Raymond Aycock, Senior Research Analyst, raycock@iif.com
Editor: Sonja Gibbs, Managing Director, and Head of Sustainable Finance, sgibbs@iif.com

• In a higher-rate environment, the global debt stock rose by $10 trillion to a new record high of $307 trillion in H1 2023.
• Following seven consecutive quarters of decline, the global debt-to-GDP ratio has resumed its upward trajectory in H1 2023.
• High inflation, higher borrowing costs, and tighter lending standards have significantly curtailed bank credit creation in
recent months. Expansion of private credit markets continues despite increased regulatory scrutiny.
• Consumer debt burdens remain largely manageable in mature markets, allowing additional room for further central bank
tightening should inflationary pressures persist.
• As higher rates and higher debt levels push government interest expenses higher, domestic debt strains are set to increase.
Yet, the international financial architecture is not adequately equipped to tackle unsustainable domestic debt levels.
• Heightened global efforts to reform multilateral development banks to scale up climate finance should accelerate the expan-
sion of ESG debt markets.

Higher rates, higher debt: The global debt pile increased Sharp slowdown in bank lending: The rise in debt ra-
by some $10 trillion in the first half of 2023 (Chart 1). It now tios this year was more evident among governments and fi-
stands at a new all-time high of $307 trillion, which is a stag- nancial institutions. In contrast, prevailing macro head-
gering $100 trillion more than it was a decade ago. Over 80% winds, including tighter funding conditions, have led to a
of the debt buildup came from mature markets in H1 2023, marked deceleration in bank credit expansion to households
with the U.S., Japan, the UK, and France registering the larg-
Chart 1: Global debt-to-GDP resumed its upward trend in H1
est increases. In emerging markets, the rise has been more
2023
pronounced in China, India, and Brazil.
$ trillion % of GDP, weighted avg.
320 370
Debt and inflation: After witnessing declines of seven
consecutive quarters, the global debt-to-GDP ratio has re- 300 Global debt (in USD) 360
sumed its upward trajectory in the first two quarters of this % of GDP (rhs)
280 350
year, now hovering around 336%—up from 334% in Q4
2022. The sudden rise in inflation was the main factor be- 260 340
hind the sharp decline in debt ratio over the past two years,
allowing many sovereigns and corporates to inflate away 240 330

their local currency liabilities. With wage and price pressures 220 320
moderating (though not expected to return to target levels),
we foresee the global debt ratio to surpass 337% by the end 200 310
2014 2017 2020 2023
of the year.
Source: IIF

Table 1: Sectoral Indebtedness*

Non-financial
Households Government Financial sector Total
$ trillion corporates
Q2 2023 Q2 2022 Q2 2023 Q2 2022 Q2 2023 Q2 2022 Q2 2023 Q2 2022 Q2 2023 Q2 2022
Mature markets 39.4 38.1 48.8 47.6 61.1 59.4 57.8 54.3 207.0 199.4
Emerging markets 18.4 18.0 41.4 40.8 26.3 24.9 14.1 14.1 100.0 97.8
Global 57.7 56.1 90.2 88.4 87.3 84.3 71.9 68.3 307.1 297.2
Source: IIF, BIS, IMF, Haver, National Sources. *Household debt incorporates outstanding bank loans. Financial sector debt and non-financial corporate debt incorporate cross-border and domestic
bank loans
TheasGlobal
well as onshore/offshore
Debt Monitor outstanding
and updated bonds. Government
global debt is extrapolated
debt database from to
are available theIIF
IMF-WEO database.
members For website
on our details, seeatthe “General Information” section of our database.
https://www.iif.com/Products/Global-Debt-
Monitor. If you would like to receive regular updates about this publication, please subscribe here.
and non-financial businesses (Chart 2). Notably, in the U.S.,
Chart 2: Sharp slowdown in bank credit growth
the continued expansion of private credit markets has of-
%yoy, bank lending to the private sector, 3mma, sample median
fered a buffer for those businesses that have faced more
14 7
stringent bank lending standards following the U.S. regional Emerging markets
banking stress earlier this year. 6
12 Mature markets (rhs)
Consumer debt burdens stay largely manageable: 5

The household debt-to-GDP in emerging markets remains 10 4

above pre-pandemic levels, largely due to China, Korea, and
8 3
Thailand. In contrast, the household debt ratio in mature
markets has dropped to its lowest level in two decades in H1 2
6
2023. Should inflationary pressures persist in mature mar- 1
kets, the health of household balance sheets, particularly in
4 0
the U.S., would provide a cushion for against further rate 2015 2017 2019 2021 2023
hikes (Chart 3). Source: Haver, IIF
EM domestic debt strains cloud the outlook: As inter-
national funding costs stabilize at higher levels, government
Chart 3: U.S. consumer debt burden remains low
debt in emerging markets (ex-China) has resumed its up-
% of disposable income (both scales)
ward trend in H2 2022, registering a slight increase to 57% 19 30
Financial Personal
of GDP. This has coincided with a modest uptick in Euro- 18 obligations saving 25
bond issuance activity. Notably, Saudi Arabia, Poland, and ratio rate, rhs
17
Türkiye were the top borrowers from international markets, 20
reflecting their substantial external borrowing needs. In con- 16
Recession 15
trast, this year has seen a sharp decline in sovereign borrow- 15 bars
ing from domestic markets, with issuance trailing 20% be- 10
14
hind last year. However, given that interest expenses on local
13 5
currency debt now make up over 80% of EM governments’
total interest costs, domestic government debt levels are at 12 0
1988 1994 2000 2006 2012 2018
alarming levels in many countries (Chart 4). Most worry-
ingly, the global financial architecture is not adequately pre- Source: FRED, IIF; *ratio of aggregate debt payments to income
pared to manage risks associated with strains in domestic
debt markets; having a market-based framework to address Chart 4: The surge in government interest expenses has
unsustainable domestic debt levels could support initiatives been more pronounced in mature markets in recent
months
to mobilize resources for development finance, including cli-
mate finance. $ trillion, 12-month moving sum, government interest expenses
3.0
Much hinges on MDB reforms: The prolonged weak-
2.5
ness in international capital flows into EMs (ex-China), Mature markets
which has persisted for over a decade, remains a substantial 2.0
challenge when seeking to mobilize much-needed interna-
1.5
tional capital for climate action. While the expansion of ESG
debt markets has been encouraging for scaling up interna- 1.0 Emerging markets (ex-CN)

tional capital, bridging large funding finance gaps depends China

0.5
on enhancing the capacity of MDBs to crowd in private cap-
ital at scale without pushing countries further into debt. 0.0
2009 2011 2013 2015 2017 2019 2021 2023
These efforts would be helped by strengthening the dialogue
between countries and their investors to develop new pro- Source: Bloomberg, IIF
jects, funding mechanisms, and mainstream best practices.

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Chart 5: Sharp rise in EM government debt has been Chart 6: Higher inflation has allowed many EMs to inflate
largely driven by borrowing from domestic debt markets away debt in recent years
$ trillion, tradable bonds % of global government bonds percentage point, change in EM government debt-to-GDP
6 14 12
EM (ex-CN) local currency gov. bonds Change in the debt-to-GDP ratio
9
5 EM (ex-CN) hard currency gov. bonds 13 6
4 EM (ex-CN) total
gov. bonds (rhs) 3
12
3 0
11 -3
2
-6 Debt service Inflation
10
1 Exchange rate Primary balance
-9
GDP growth Others
0 9 -12
2007 2009 2011 2013 2015 2017 2019 2021 2023 2015 2016 2017 2018 2019 2020 2021 2022

Source: Bloomberg, IIF Source: FDL, IIF

Chart 7: International demand for EM assets remains vul- Chart 8: …and tighter international funding conditions
nerable at a time of rising global polarization…
% of GDP, annual average, capital flows to EM (ex-China)
$ billion, non-resident capital inflows 5.5
1400 FDI Portfolio debt Portfolio equity
4.5 Other (ex-SDR)
1200
SDR
1000 3.5

800 2.5

600 1.5
Rise of multi-polar world
400
0.5
200 EM (ex-China)
EM (ex-China, ex-SDR) -0.5
0 90s 00s 10s 2020/22
1994 1999 2004 2009 2014 2019 2024
Source: IIF, IMF
Source: IIF, IMF

Chart 10: …with significant increases in EM Europe, SSA

Chart 9: External borrowing needs of emerging markets re- and Middle East & Central Asia
main sizable, …
% of GDP, chg. in ext. financing needs btw 2023/4, and 2021/2
percent of GDP (both scales)
14 1.8 EM Europe
EM external
financing needs 1.6
12 MECA
1.4
10 SSA
1.2
EM
8
1.0
EM Asia
6 Interest expense 0.8
on external debt (rhs) Latam
4 0.6
2002 2005 2008 2011 2014 2017 2020 2023 -5 -4 -3 -2 -1 0 1 2 3 4 5

Source: IIF, IMF Source: IIF, IMF

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Chart 11: Long-term bond and loan issuance runs slightly Chart 12: Banking sector stress, higher borrowing costs,
above pre-pandemic levels and stubborn inflation dampen syndicated loan activity
index, end-2014=100, debt issuance, 12mva, adj. for inflation
$ trillion, long-term general govt. & corp. bond & loan 130
issuance
120 Global bond issuance
25 Mature markets Estimate for
remainder of 2023 110
Emerging markets
20
Offshore centers 100
15 90

10 80

5 70
Global syndicated loan issuance
0 60
2000 2003 2006 2009 2012 2015 2018 2021 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Bloomberg, IIF Source: Bloomberg, IIF

Chart 13: EMs face some $3 trillion of bond and loan re- Chart 14: Higher policy rates continue to drive massive ap-
demption until year-end* petite for money market funds…

$ trillion, U.S. money market funds, AUM

$ trillion, includes principal repayments on ST/LT bonds/loans
8.0 6
Local currency Government (U.S. Treasuries)
7.0 Prime (mainly CPs and CDs)
Foreign currency 5
6.0 Tax-exempt (mainly municipals)
Redeemed debt in LC
4
5.0 Redeemed debt in FC
4.0 3
3.0
2
2.0
1
1.0
0.0 0
2020 2022 2024 2026 2028 2030 2007 2009 2011 2013 2015 2017 2019 2021 2023

Source: Bloomberg, IIF. *The exhibit does not imply an improvement in funding strains start- Source: ICI, IIF
ing in 2023. While local currency-denominated securities with a maturity less than 12 months are still an im-
portant source of funding in many jurisdictions, the redemption figures for 2023 will increase as we continue
to see further issuance of short-term securities through 2023

Chart 16: Demand for private debt remains relatively

Chart 15: …while reducing the demand for bond mutual strong despite sharp rise in funding costs
funds
$ billion, private debt fundraising percent
300 6
$ trillion, cumulative bond mutual fund flows
Private debt fundraising
0.8 250 2023H2 annualized figure 5
Investment-grade
0.7 2yr UST rate (rhs)
bond mutual funds
0.6 200 4
0.5 March 2020 -
0.4 Covid-19 shock 150 3
0.3
100 2
0.2
0.1 50 1
0.0
-0.1 High-yield 0 0
bond mutual funds 11 13 15 17 19 21 23H1
-0.2
2016 2017 2018 2019 2020 2021 2022 2023
Source: PitchBook, IIF
Source: ICI, IIF

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Chart 17: By mid-September, the sustainable debt universe Chart 18: In 2023, global ESG debt issuance surpassed $810
exceeded $5.5 trillion billion, largely driven by ESG bond market

$ trillion $ billion, issuance, through mid-September

ESG-labelled loans ESG-labelled bonds
200
1.69 ESG-labelled loans
3mma of total
150
ESG debt

100

50
3.85
ESG-labelled
bonds 0
2019 2020 2021 2022 2023

Source: Bloomberg, IIF Sustainable Debt Monitor database Source: Bloomberg, IIF Sustainable Debt Monitor database

Chart 19: ESG bond issuance amounted to $680 billion in Chart 20: Over $350 billion of green bonds were issued in
2023ytd, at par with levels seen a year ago 2023, led by sovereigns and financial corporates

$ billion $ billion, gross cumulative green bond issuance

700
Green bonds 2021
600
Sustainability bonds 500

Social bonds 400 2022

300 2020
Sustainability-linked bonds
Jan. - Aug. '23 200 2023
Green ABS
Jan. - Aug. '22
100
Green muni bonds
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0 100 200 300 400

Source: Bloomberg, IIF Sustainable Debt Monitor database Source: Bloomberg, IIF Sustainable Debt Monitor database

Chart 21: In contrast, ESG loan issuance remains quite sub- Chart 22: Carbon footprint of commercial bank loans in
dued at $130 billion emerging markets remains relatively high compared to
their mature market peers
$ billion, issuance through mid-September
80 tons of carbon per $ million of loans
Green loans 2500
70
Sustainability-linked loans 2000
60
3mma of total 1500
50
ESG loan
40 1000

30 500
20 0
Italy
Indonesia

Canada
Brazil

Spain

France
Korea

Germany
Finland

Japan
Türkiye

Hungary
Philippines

Malaysia

Peru

Netherlands
Kazakhstan

Colombia

Switzerland
Argentina
Greece

10
0
2019 2020 2021 2022 2023

Source: Bloomberg, IIF Sustainable Debt Monitor database

Source: Bloomberg, IIF

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Table 2: Total Global Debt by Sector
Non-financial
% of GDP Households Government Financial Sector
corporates
Q2 2023 Q2 2022 Q2 2023 Q2 2022 Q2 2023 Q2 2022 Q2 2023 Q2 2022
Global 61.9 63.4 94.7 96.4 97.2 99.2 82.1 82.6
Mature markets 70.9 73.9 89.4 93.7 115.5 119.9 109.4 109.9
U.S. 74.0 76.0 75.3 79.4 118.6 121.0 79.9 77.7
Euro Area 55.4 58.5 98.7 104.7 93.7 101.1 108.9 112.1
Japan 59.6 65.1 116.1 116.8 239.4 244.0 205.4 201.5
UK 80.3 84.3 64.1 69.6 89.1 100.5 159.1 173.0
Emerging markets 46.9 46.0 103.7 101.1 66.7 64.4 36.4 36.8
EM Asia 59.8 58.5 132.6 128.5 75.4 71.6 45.1 45.0
China 63.7 61.3 164.3 158.0 80.2 74.5 48.6 47.4
Hong Kong 96.0 94.5 264.8 289.5 67.6 79.1 148.6 164.4
India 37.8 35.7 55.5 52.5 84.3 82.7 2.7 2.9
Indonesia 16.1 16.5 23.6 25.2 37.8 39.4 6.3 7.4
Malaysia 67.5 69.3 58.3 64.8 63.3 62.6 26.5 23.6
Pakistan 2.2 2.4 10.8 11.2 74.5 74.8 1.3 0.9
Philippines 13.2 14.8 28.7 31.2 57.3 57.6 8.8 10.4
S. Korea 101.7 105.2 120.9 116.0 48.3 45.4 88.2 87.0
Singapore 48.3 51.2 130.2 132.6 171.1 160.4 167.4 186.7
Thailand 86.8 89.0 84.5 88.7 54.0 53.9 33.5 33.5
Vietnam 25.8 26.2 113.8 105.2 37.9 38.6 4.4 5.0
EM Europe 20.8 20.6 63.5 62.7 32.8 32.4 15.9 16.8
Czech Republic 32.0 33.7 50.5 51.0 39.1 38.7 32.9 35.2
Hungary 17.5 19.9 76.1 83.7 62.3 67.6 9.1 11.2
Poland 24.5 29.7 38.0 41.9 43.3 46.4 23.6 24.9
Russia 22.5 19.4 78.0 67.4 22.3 19.1 9.1 6.7
Turkey 12.6 13.2 54.2 67.4 38.6 40.5 20.1 26.8
EM Latam 24.3 24.5 40.6 41.3 64.1 65.4 24.2 27.7
Argentina 4.0 4.4 17.7 18.1 73.6 74.3 9.1 9.5
Brazil 32.7 33.6 52.1 51.9 86.0 88.8 40.5 46.2
Chile 45.7 45.2 96.1 103.6 34.7 36.2 46.8 55.2
Colombia 27.0 29.3 31.0 33.3 61.3 63.4 4.2 5.8
Mexico 16.7 15.2 22.6 22.4 38.9 38.2 8.8 10.0
Peru 13.8 13.9 42.8 47.3 33.8 34.9 7.7 9.4
AFME 20.1 19.8 43.6 43.3 47.6 48.3 16.6 16.3
Egypt 8.6 8.9 21.8 21.0 81.2 82.5 5.2 4.0
Ghana 2.6 2.8 13.3 14.1 95.8 88.2 3.9 5.0
Israel 42.7 44.5 69.4 71.1 58.7 64.4 11.4 10.5
Kenya 11.1 11.3 20.1 18.8 68.6 67.6 2.2 2.0
Nigeria 12.9 7.4 9.0 10.5 39.1 37.7 9.9 5.4
Saudi Arabia 12.9 13.7 61.3 57.4 24.3 25.3 6.0 5.1
South Africa 34.2 34.3 33.3 32.2 74.4 71.5 34.6 29.3
UAE 21.4 21.3 58.4 62.7 30.3 32.5 44.6 55.6
Sources: IIF, BIS, Haver, National Sources.

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Table 3: Currency Breakdown of EM Sectoral Debt
% of GDP Non-financial corporates Government Financial Sector Households
o/w o/w o/w o/w o/w o/w
As of Q2-2023 LC FC LC FC LC FC LC FC
USD EURO USD EURO USD EURO
Emerging markets
EM Asia
China 159.7 4.6 3.9 0.5 79.0 1.2 0.9 0.3 44.4 4.2 3.2 0.3 63.7 0.0
Hong Kong 55.5 209.3 148.4 38.9 59.8 7.8 4.2 1.5 40.9 107.7 83.2 8.9 93.1 2.9
India 48.3 7.2 6.1 1.0 82.0 2.3 2.3 0.0 0.6 2.1 1.7 0.2 37.8 0.0
Indonesia 15.9 7.8 6.9 0.8 29.9 7.9 6.4 1.1 2.4 4.0 3.8 0.2 15.8 0.3
Malaysia 44.7 13.6 11.1 0.0 61.1 2.3 1.8 0.0 11.4 15.1 12.2 1.4 67.2 0.3
S. Korea 99.0 21.9 17.9 3.2 47.3 1.0 0.5 0.4 69.5 18.7 14.8 2.6 100.9 0.9
Singapore 69.2 61.0 55.1 2.5 171.1 0.0 0.0 0.0 48.2 119.3 77.6 14.1 40.8 7.5
Thailand 72.0 12.6 11.1 0.5 53.5 0.4 0.4 0.0 25.4 8.1 6.9 0.3 86.6 0.2
EM Europe
Czech Republic 22.6 27.9 0.8 26.2 38.7 0.4 0.0 0.4 27.5 5.4 0.2 5.0 31.9 0.1
Hungary 41.4 34.7 10.3 24.4 46.1 16.2 7.2 8.4 4.4 4.6 0.9 3.5 17.5 0.1
Poland 24.9 13.1 0.9 12.1 32.3 11.0 1.8 8.9 16.6 7.0 0.7 3.2 19.0 5.5
Russia 65.3 12.7 6.1 5.8 18.9 3.4 2.9 0.5 7.3 1.8 1.6 0.1 22.4 0.0
Turkey 32.9 21.3 8.7 12.3 12.7 25.9 17.4 5.0 2.9 17.1 12.5 4.4 12.5 0.0
EM Latam
Argentina 12.2 5.5 5.3 0.1 26.0 47.6 43.0 1.4 8.4 0.7 0.3 0.1 3.9 0.1
Brazil 38.9 13.2 11.9 1.0 82.0 4.0 3.2 0.8 33.9 6.5 5.9 0.2 32.7 0.0
Chile 63.4 32.7 31.6 0.4 23.4 11.2 7.6 3.6 39.3 7.5 6.2 0.2 43.7 2.0
Colombia 19.9 11.1 10.2 0.5 39.0 22.3 19.0 0.8 0.4 3.8 3.7 0.1 26.9 0.1
Mexico 9.5 13.1 11.2 1.2 32.5 6.5 4.9 1.0 6.5 2.3 1.7 0.4 16.7 0.0
Peru 22.5 20.3 19.9 0.4 17.4 16.4 14.2 2.2 2.5 5.2 5.0 0.1 12.9 0.9
AFME
Israel 49.3 20.1 13.6 5.8 50.5 8.3 5.5 2.7 7.9 3.5 2.9 0.5 42.6 0.2
S. Arabia 51.6 9.8 9.4 0.3 15.6 8.7 8.7 0.0 0.7 5.3 4.7 0.1 12.9 0.0
S. Africa 17.8 15.4 9.3 4.6 66.8 7.5 7.4 0.2 24.3 10.3 4.6 1.0 33.9 0.3
Sources: BIS, Haver, National Sources, IIF estimates
*LC=local currency; FC=foreign currency

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