Global Debt Hits $365 Trillion as Advanced Economies Get Trapped in Fiscal Vicious Circle

Government debt burdens around the world have surged to unprecedented levels, reaching more than $365 trillion in the first half of this year. The Institute of International Finance (IIF) reported a $10 trillion increase over six months, fueling concerns about a fiscal cycle that is becoming increasingly difficult to break.

What sets this time apart is the position of advanced economies. The IIF highlighted the United States, Japan, France, and the United Kingdom as countries now facing prolonged large deficits and swelling interest burdens—a pattern long associated with developing countries caught in debt crises. Medium- and long-term government bond yields in all four countries have touched their highest levels in more than a decade, reflecting investor concerns over rising interest rates, energy cost pressures, sluggish economic growth, and high fiscal spending.

IIF data reveals that advanced economies spent more than $3.3 trillion to pay interest on internationally traded government bonds last year. That figure exceeds total global spending on artificial intelligence ($2.6 trillion), defense ($3.1 trillion), and clean energy ($2.3 trillion). This fact underscores that debt burdens have become a major rival to development priorities in many countries.

The IIF warned of a "vicious circle between elections and short-term quick fixes, as well as long-term vulnerabilities as the marginal utility of higher debt diminishes." The Washington-based group also noted that structural pressures from public health and pension spending remain largely unaddressed. "As policy rates rise, interest burdens will surge," it added.

The Organisation for Economic Co-operation and Development (OECD), in its economic outlook released Wednesday, emphasized that rising bond yields point to the need for greater efforts to "restrain and reallocate government spending, improve public sector efficiency, and strengthen revenues." The OECD called for reforms to ensure long-term debt sustainability and governments' ability to withstand future shocks.

"It is impossible to overstate how critical the courage to take the necessary steps is. These are politically difficult steps, but they must be taken," IMF Managing Director Kristalina Georgieva said in an interview with the BBC.

Georgieva described global economic shocks as "pushing debt levels up like a staircase that does not lead to heaven" and criticized the lack of government action. She stressed two things that must be done: lower debt levels, prioritize fiscal consolidation, and ensure central banks fulfill their price stability mandate.

Indonesian Context

For Indonesia, the surge in global debt and high government bond yields in advanced economies carry direct implications. The government needs to be wary of potential increases in borrowing costs in international markets as global investors demand higher risk premiums. On the other hand, pressure on the domestic budget could increase if subsidy spending and social protection programs remain large without being matched by adequate state revenues. Indonesia's debt-to-GDP ratio remains relatively contained, but fiscal discipline and diversification of financing sources are becoming increasingly crucial.

A global economy weighed down by large debts could also slow Indonesia's export demand, especially if major trading partners tighten fiscal policy. The government and Bank Indonesia need to maintain the credibility of monetary and fiscal policy to avoid being caught in capital outflows that could weaken the rupiah.

Going forward, the question is no longer whether global debt will continue to rise, but how quickly policymakers dare to take unpopular steps before markets force a more painful adjustment. Without bold structural reforms, the risk of a fiscal crisis in advanced economies will become a time bomb whose impact is felt all the way to emerging markets, including Indonesia.