Debt and Development: A Worldwide Balancing Act

In 2025, global debt dynamics have reached unprecedented levels, shaping economic policies and development agendas across every continent.

Across economies of all sizes, governments and corporations face the challenge of balancing the benefits of borrowing with the risks of overindebtedness. This article examines the structure and interdependencies of global debt and its influence on economic progress and stability.

Historical Trends and the COVID-19 Legacy

By the end of 2024, total global debt reached $251 trillion, a level driven by emergency spending during the pandemic and sustained fiscal stimuli. In the first quarter of 2025, that number further climbed to over $324 trillion worldwide, setting a new record.

The global debt-to-GDP ratio settled at approximately 235% in 2024, down from the pandemic peak of 258% in 2020, but still above pre-COVID levels. Public debt rose to nearly 93% of world GDP, while private debt fell to under 143%, its lowest share since 2015.

Governments worldwide tapped bond markets to finance pandemic-related healthcare spending and stimulus packages. This surge in borrowing was supported by record-low rates, but as central banks tightened monetary policy in 2022 and 2023, debt servicing costs began to rise, testing the resilience of highly leveraged states.

• 2024 total global debt: $251 trillion
• Q1 2025 record high: $324 trillion
• Global debt-to-GDP ratio: ~235%

Advanced Economies: Sustaining Growth Amid High Debt

Advanced economies continue to carry substantial liabilities, with public debt ratios often exceeding 110% of GDP. The United States stands at 121%, while Japan’s government debt soars between 230% and 256% of its GDP, making it the world leader in national borrowing.

Despite these high ratios, private debt in many advanced markets has decreased by nearly 10 percentage points below 2019 levels. Companies have leveraged strong balance sheets and improved cash flows to reduce borrowing, aiming to protect against high global interest rates and tightening credit conditions.

Nonetheless, the persistence of persistent global fiscal deficits—averaging around 5% of GDP across OECD countries—continues to pressure public finances and limit capacity for fresh investments in infrastructure and innovation.

In Europe, several nations have relied on negative real yields to sustain financing. However, the shift toward higher yields in late 2024 forced policymakers to reassess debt maturities, leading to longer issuance schedules and measures to spread interest rate exposure over time.

Emerging Markets and Developing Economies: Unique Challenges

Emerging markets and developing economies (EMDEs) bear different debt burdens, with public debt ratios averaging between 56% and 69% of GDP. Countries such as India, Brazil, and Mexico have witnessed rising private borrowing driven by robust growth prospects and corporate mergers and acquisitions.

China exemplifies these trends, with government debt reaching 96% of GDP in 2025 and private debt climbing to 206%, fueled by non-financial corporations even as household borrowing moderated. Limited financial infrastructure and tighter liquidity pose risks of crowding-out of private sector credit and delayed development finance in many lower-income countries.

Many EMDE governments face external financing gaps, especially smaller economies with limited domestic savings. Currency depreciation and volatile capital flows can quickly inflate foreign-currency debt burdens, increasing the risk of sovereign distress.

Public vs Private Debt: Shifting Dynamics

The composition of global debt—split between $99.2 trillion of public debt and $151.8 trillion of private debt—reflects shifting priorities and market conditions. Public entities have ramped up borrowing to fund social programs and public health, while private sector borrowing has been more cyclical, sensitive to interest rate cycles and growth expectations.

In many EMDEs, public debt has played a countercyclical role, filling gaps in social spending during downturns. Conversely, private households and firms in advanced economies have used periods of low rates to refinance existing loans and reduce net leverage.

As borrowing patterns evolve, some countries are exploring market-based solutions such as green bonds and social impact bonds to link debt financing directly to development outcomes, aligning investor incentives with sustainable growth objectives.

The Crowding-Out Effect

One of the most significant risks of high public borrowing is crowding-out of private sector investment. When governments absorb a large share of available credit, the cost of financing for businesses and households can rise, stifling entrepreneurship and infrastructure projects.

This phenomenon is particularly acute in low-income countries, where limited access to international capital markets and tighter domestic liquidity can translate into skyrocketing borrowing costs, restricted credit availability, and slowed development.

Sovereign Bond Markets and Global Liquidity

Sovereign bond issuance has accelerated, with OECD countries projected to issue a record $17 trillion in public debt securities in 2025, up from $14 trillion in 2023. This surge has been necessary to roll over existing obligations and finance ongoing fiscal deficits.

However, higher issuance volumes can strain market absorption capacity and raise yields. Investors demand premiums for longer-term maturities and riskier credits, especially in less liquid EMDE markets.

Country Case Studies

Examining specific national profiles highlights the diversity of debt circumstances and policy responses.

Japan has relied on domestic savings to finance its towering debt, while Lebanon’s financial crisis has underscored the dangers of unregulated borrowing. In the United States, rising interest costs have increased debt servicing burdens, and Greece continues to rebuild after previous debt restructurings.

Policy Solutions for a Balanced Future

• Implement gradual fiscal adjustments within credible plans that phase out emergency spending and prioritize efficiency.
• Strengthen debt management offices and transparency to reduce borrowing costs and improve market confidence.
• Encourage public-private partnerships to share infrastructure finance risks and attract private capital.
• Foster medium-term growth and investment strategies targeting technology, education, and green energy.
• Coordinate international support for low-income countries through concessional financing and debt relief initiatives.

Looking Ahead: Risks and Opportunities

The global debt landscape in 2025 presents both challenges and potential pathways to sustainable development. High debt levels can constrain policy space, but well-calibrated borrowing can unlock critical investments in health, education, and infrastructure.

Going forward, governments must navigate a balancing act between growth and sustainability, maintaining access to credit markets while avoiding excessive leverage. International cooperation, robust fiscal frameworks, and innovative financing mechanisms will be key to ensuring that debt serves as a tool for progress rather than a barrier to future prosperity.

Ultimately, the story of debt and development is one of trade-offs. By adopting prudent policies and fostering resilience, countries can harness the power of borrowing to build inclusive, dynamic economies capable of weathering shocks and delivering long-term growth.