The World Trapped in a Debt Swamp: "Total Debt Hits an All-Time High"

Korea Ranks 4th Globally in Household Debt to GDP Ratio

Despite steep interest rate hikes, global debt has soared to an all-time high. While household debt in emerging countries is rapidly increasing, South Korea's household debt-to-GDP ratio ranked fourth highest in the world.

According to the "Global Debt Report" released on the 19th (local time) by the Institute of International Finance (IIF), the total accumulated global debt reached $307 trillion (approximately 40,831 trillion KRW) as of the end of June this year, marking a record high. Global debt increased by $10 trillion in the first half of this year alone, a sharp rise compared to the $100 trillion increase over the past decade.

As a result, the global debt-to-GDP ratio surged to 335.9%. This is nearly a 2 percentage point increase from the end of last year (334.1%). Emre Tiftik, head of sustainability research at IIF who authored the report, stated, "The debt-to-GDP ratio has broken the downward trend seen over the past seven consecutive quarters and has started to rise again," adding, "With easing wage and price pressures, it is expected to surpass 337% by the end of the year."

[Image source=Reuters Yonhap News]

The IIF expressed particular concern over the sharp increase in debt burdens in advanced economies. More than 80% of new debt incurred during this period came from advanced countries, with the United States, Japan, the United Kingdom, and France showing the largest increases. Among emerging countries, the biggest increases in new debt were seen in economic powerhouses such as China, India, and Brazil. Fitch, the credit rating agency that downgraded the U.S. credit rating earlier this year, noted, "Interest rate hikes pose a major risk to public finances and sovereign credit ratings in advanced economies," warning that "interest expenses due to rising debt are increasing faster than interest income."

Debt levels in emerging countries have rapidly increased since 2007, pushing many into default (debt non-payment) crises and other difficulties. The report stated, "Household debt-to-GDP ratios in emerging countries remain above pre-COVID-19 pandemic levels, particularly high in China, South Korea, and Thailand." South Korea's household debt-to-GDP ratio was 101.7%, ranking fourth highest globally.

Switzerland (126.1%), Australia (109.9%), and Canada (103.1%) ranked first to third worldwide in household debt-to-GDP ratios, while the global average was 61.9%. Conversely, in advanced economies, household debt-to-GDP ratios fell to their lowest levels in 20 years. Researcher Tiftik commented, "The encouraging point is that household debt burdens in advanced economies remain at manageable levels," adding, "The financial health of U.S. households will act as a buffer against the Federal Reserve's interest rate hikes."

Experts expressed concerns that the rapid increase in debt could further heighten recession risks for the global economy. One foreign media outlet warned, "Companies and individuals whose incomes and revenues have sharply declined have taken on debt to avoid bankruptcy, and governments have increased debt to stimulate the economy through subsidies and expanded public works," cautioning that "as a result of the recent surge in debt, governments, companies, and individuals worldwide are tightening their belts, curbing spending and investment, which could ultimately hinder economic growth."

Earlier, the International Monetary Fund (IMF) also warned on the 13th that "urgent measures are needed to reduce vulnerabilities in private and public debt across countries." It emphasized that strong monitoring policies are necessary for private debt, especially household and non-financial corporate debt, and that public debt requires a reliable fiscal framework to balance expenditures.