Global debt expansion has halved, and G7 interest payments have risen to their highest level since 2008.

Global debt continues to expand, but the growth rate has halved, and developed economies are paying increasingly higher interest rates for years of expansion.

A recent report from the Institute of International Finance (IIF) shows that global debt will increase by more than $10 trillion in the first half of 2026, bringing the total to over $365 trillion, a new record high . At the same time, the average government borrowing cost of the G7 countries has risen to its highest level since mid-2008, and developed economies have spent more than $3.3 trillion on interest payments on internationally traded government bonds in the past year alone.

The annual interest expense of $3.3 trillion not only exceeds the estimated $2.6 trillion in global spending on artificial intelligence, but also surpasses the $3.1 trillion in defense spending and the $2.3 trillion in clean energy spending. IIF data shows that the G7's annual interest expense is almost 85% higher than previous levels. For developed economies already under pressure on fiscal space, this figure directly quantifies the encroachment of interest burdens on public resources.

It is noteworthy that the pace of global debt expansion is actually slowing down—more than $10 trillion was added in the first half of 2026, less than half of the $21 trillion added in the same period last year. However, the divergence between the increase in debt and the interest burden means that the rolling cost of existing debt has been locked in a higher interest rate range, which is becoming a new form of sovereign debt risk.

Interest payments totaled $3.3 trillion, exceeding investments in AI, defense, and clean energy.

According to the IIF Global Debt Monitor, the average government borrowing cost in G7 economies has risen to its highest level since mid-2008, with annual interest payments nearly 85% higher than before. Over the past year, developed economies paid more than $3.3 trillion in interest on internationally traded government bonds.

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

In other words, the funds that developed economies use to repay the interest on existing debt each year are enough to cover a whole year's worth of global AI investment with a surplus, thus providing a direct quantification of the pressure that interest burdens place on fiscal space.

New debt has been halved, but the cost of refinancing existing debt remains high.

According to an IIF report, global debt will increase by more than $10 trillion in the first half of 2026, bringing the total to over $365 trillion, a new record high. However, this increase is less than half of the $21 trillion increase in the same period of 2025.

The IIF points out that a high-interest-rate environment, rising debt repayment costs, higher energy prices, and the conflict with Iran have collectively suppressed lending activity. Emerging markets were the main driver of this round of debt growth, with debt increasing by $6.5 trillion in the first half of the year, bringing the total to over $110 trillion; the rate of debt accumulation in developed economies slowed significantly during the same period.

Government departments and non-financial enterprises contributed the majority of the incremental debt, with both sectors setting new historical records. Even if the scale of new debt decreases, total interest expenses will continue to rise as old debt matures and new debt is rolled over with higher coupon rates.

The decline in the debt-to-GDP ratio is an "inflation illusion," and the risk of rolling over into the spotlight is taking center stage.

Global debt is currently around 310% of GDP, about 25 percentage points lower than its peak in early 2021. However, the IIF points out that this decline is largely due to inflation pushing up nominal GDP, rather than substantial deleveraging.

This means that once inflation falls and nominal GDP growth slows, the improvement in the debt ratio will quickly reverse. High interest rates are both pushing up government refinancing costs and making the decline in the debt-to-GDP ratio highly dependent on inflation, creating a policy dilemma.

According to an IIF report, the yield on 10-year US Treasury bonds has risen to its highest level since 2007, and the yield on 30-year Treasury bonds has also reached its peak in nearly two decades, leading to a surge in government refinancing costs. While the average borrowing cost for the G7 has returned to its highest level since mid-2008, the total global debt has surpassed a record high of $365 trillion, and the rolling risk of sovereign debt is transforming from a theoretical scenario into a real constraint.

For investors holding long-term sovereign bonds, the boundary between interest rate risk and credit risk is becoming blurred, and this change deserves continued attention.

Risk Warning and DisclaimerInvesting involves risk; please exercise caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment decisions made based on this information are at your own risk.