Global debt continues to expand but at a sharply reduced pace, and advanced economies are now bearing an increasingly heavy interest burden from years of accumulated borrowing.

According to the latest report from the Institute of International Finance, global debt increased by over $10 trillion in the first half of 2026, pushing the total beyond $365 trillion to a record high. At the same time, the average government borrowing cost for the Group of Seven nations has climbed to its highest level since mid-2008, with advanced economies paying more than $3.3 trillion in interest on internationally traded government bonds over the past year.

That $3.3 trillion in annual interest payments not only exceeds the estimated $2.6 trillion spent globally on artificial intelligence, but also surpasses $3.1 trillion in defense spending and $2.3 trillion in clean energy investment. The data shows G7 annual interest expenses are nearly 85% higher than previous levels. For advanced economies already facing strained fiscal space, this figure provides a stark quantification of how interest burdens are crowding out public resources.

Interest payments of $3.3 trillion surpass AI, defense, and clean energy outlays

The IIF Global Debt Monitor report reveals that average government borrowing costs in G7 economies have risen to their highest since mid-2008, with annual interest expenses nearly 85% above prior levels. Over the past twelve months, advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds.

This amount exceeds the $2.6 trillion estimated spending on global artificial intelligence, and is also higher than the $3.1 trillion defense budget and $2.3 trillion clean energy expenditure.

In other words, the annual interest payments advanced economies make just to service existing debt would fully cover a year of global AI investment with room to spare, offering a clear measure of how interest burdens are squeezing fiscal capacity.

New debt additions halve while refinancing costs remain locked at elevated levels

The IIF report shows global debt expanded by over $10 trillion in the first half of 2026, bringing the total beyond $365 trillion to a new record. However, this increase is less than half of the $21 trillion added during the same period in 2025.

The IIF attributes the slowdown to high interest rates, rising debt service costs, higher energy prices, and the conflict with Iran, all of which have suppressed borrowing activity. Emerging markets have been the primary driver of this debt growth, adding $6.5 trillion in the first half to surpass $110 trillion in total, while debt accumulation in advanced economies has notably decelerated during the same period.

Government sectors and non-financial corporations contributed the bulk of the increase, with both categories setting new historical records. As old debts mature and new ones are issued at higher coupon rates, total interest expenses will continue to climb even if new debt growth declines.

Declining debt-to-GDP ratio is an inflation illusion as rollover risks move to the forefront

Global debt stands at approximately 310% of GDP, about 25 percentage points below the peak seen in early 2021. But the IIF points out that this decline is largely due to inflation inflating nominal GDP rather than genuine deleveraging.

This implies that once inflation retreats and nominal GDP growth slows, the improvement in debt ratios could quickly reverse. High interest rates are simultaneously pushing up government refinancing costs while making the debt-to-GDP decline heavily dependent on inflation, creating a policy dilemma.

According to the IIF report, the 10-year U.S. Treasury yield has risen to its highest since 2007, and the 30-year yield has also reached a two-decade peak, driving up government refinancing costs. While average G7 borrowing costs have returned to levels not seen since mid-2008, the global debt total has surpassed the $365 trillion historical high, transforming sovereign debt rollover risk from a theoretical scenario into a practical constraint.

For investors holding long-duration sovereign bonds, the line between interest rate risk and credit risk is becoming increasingly blurred, a development that warrants continued attention.