Global debt hits $365 trillion: Why inflation masks the world’s rising debt burden

Global debt climbed to a record $365 trillion in the first half of 2026, rising by more than $10 trillion in just six months, according to figures highlighted by financial commentary publication The Kobeissi Letter, citing data from the Institute of International Finance (IIF). 

The increase comes despite the global debt-to-GDP ratio remaining below its pandemic-era peak. The apparent improvement in the ratio, however, masks an important factor: inflation has lifted nominal GDP, rather than the world undergoing a broad-based reduction in debt. 

Global debt crosses $365 trillion 

The IIF chart shows global debt rising steadily over the past several years, from roughly $250 trillion in 2018 to about $365 trillion by the first half of 2026. 

The latest increase was particularly pronounced in emerging markets. According to The Kobeissi Letter, emerging-market debt increased by $6.5 trillion in H1 2026, reaching a record $110 trillion. Governments and non-financial companies accounted for most of the increase. 

Excluding China, debt across emerging-market and developing economies reached about $38 trillion, highlighting the growing financing requirements outside the world's largest advanced economies. 

Why has the debt-to-GDP ratio fallen? 

At around 310% of global GDP, the debt burden remains enormous. Yet the ratio is about 25 percentage points below its early-2021 peak, according to the figures cited by The Kobeissi Letter. That decline does not necessarily mean governments, companies and households have significantly paid down their debt. 

The denominator — nominal global GDP — has grown partly because of inflation. When prices rise, the nominal value of economic output increases even if the underlying volume of goods and services does not rise at the same pace. 

This can make the debt-to-GDP ratio appear more manageable. In simple terms, the world can have more debt in dollar terms while its debt ratio falls if nominal GDP grows faster than debt. 

Emerging markets are driving much of the increase 

The latest debt expansion is increasingly concentrated in emerging economies. Governments have borrowed to finance public spending, infrastructure and fiscal deficits, while companies have also relied on debt to fund investment and operations. 

Higher borrowing costs can make this more difficult to sustain. When interest rates are elevated, refinancing maturing debt becomes more expensive, potentially forcing governments and companies to devote a larger share of their income to servicing existing obligations. 

For emerging markets, the problem can be particularly complicated when debt is denominated in foreign currencies. A weaker domestic currency can increase the local-currency cost of servicing dollar- or euro-denominated debt. 

Interest costs are a major economic burden 

One of the most significant concerns is not simply the size of global debt, but how much it costs to service that debt. 

The Kobeissi Letter estimates that developed economies paid more than $3.3 trillion in interest on marketable government debt over the past year. 

That figure is larger than the publication's estimates for global spending on: 

• AI: $2.6 trillion 
• Defence: $3.1 trillion 
• Clean energy: $2.3 trillion 

The comparison illustrates how rapidly debt servicing costs have become a major claim on government finances. 

Across the G7, annual government interest payments have also surged, with The Kobeissi Letter citing an 85% year-on-year increase. 

Why rising interest costs matter 

Interest payments do not directly create infrastructure, public services or economic output. They represent the cost of servicing borrowing accumulated in previous years. 

As interest costs rise, governments face difficult choices. They may need to increase taxes, reduce spending elsewhere, borrow more to cover interest obligations, or tolerate larger fiscal deficits. 

There is also a potential feedback loop: higher deficits can require more borrowing, while higher borrowing costs increase the amount governments need to borrow or refinance. This becomes particularly challenging when economic growth slows. 

A $365 trillion debt figure sounds extraordinary, but the headline number alone does not determine whether the global debt burden is sustainable. Debt needs to be assessed against income, economic growth, interest rates, government revenues and the ability of borrowers to refinance their obligations. 

The recent data nevertheless point to an important distinction: the world has not necessarily deleveraged simply because the global debt-to-GDP ratio has declined from its 2021 peak.