Government borrowing worldwide is set to reach an all-time high of $12.3 trillion in 2024, driven by increased defense spending, higher interest rates, and persistent fiscal challenges across major economies. According to Financial Times, estimates from S&P Global Ratings indicate that sovereign bond issuance will rise by 3% across 138 countries, pushing the total global debt stock to a record $76.9 trillion.
The rapid accumulation of debt has been fueled by successive crises, including the global financial crash, the COVID-19 pandemic, and the latest push for European defense spending. “Big economies’ focus on fiscal policy to deal with crisis after crisis continues, and the outcome is you do have a much more indebted sovereign picture,” said Roberto Sifon-Arevalo, global head of sovereigns at S&P.
A key challenge is the rising cost of servicing government debt, as bond yields have surged since central banks ended their large-scale bond-buying programs. “Borrowing to fund higher spending was fine and sustainable while you had the borrowing costs that you had before the pandemic. Now, it presents a much bigger problem,” Sifon-Arevalo warned.
The United States, the world’s largest borrower, will issue $4.9 trillion in long-term debt this year, as it grapples with wide fiscal deficits, high interest payments, and substantial refinancing needs. Despite concerns about debt sustainability, S&P noted that the US benefits from the dollar’s status as the world’s reserve currency, which provides “significant flexibility” in managing public finances.
China, the second-largest sovereign borrower, is expected to increase its long-term issuance by over $370 billion to $2.1 trillion as Beijing ramps up spending to stimulate its sluggish economy.
Worsening public finances are becoming a growing concern among investors. In December, bond giant Pimco warned it was reducing exposure to long-dated US debt due to sustainability risks, while billionaire investor Ray Dalio cautioned that the UK could be on the brink of a “debt death spiral,” where mounting borrowing needs trigger a self-reinforcing bond sell-off.
S&P’s data reveals that the global debt-to-GDP ratio will reach 70.2% this year, below the pandemic-era peak of 73.8% in 2020 but still on an upward trajectory. Credit quality has also deteriorated since the 2008 financial crisis, with the share of AAA-rated sovereign debt shrinking as countries like the US and UK have lost their top credit rankings.
As governments issue more debt, investor concerns over fiscal sustainability are pushing yields higher, compounding economic uncertainty. Sifon-Arevalo noted that while there is still demand to absorb this debt issuance, the rising cost of servicing these obligations will limit governments’ ability to invest in other areas, such as infrastructure. This, in turn, is fueling a shift in political sentiment worldwide.
“The growth of more fiscally conservative [political] movements is not unrelated to the fact that you have seen this massive growth in fiscal deficits and debt,” he said.
