While families worry about their monthly credit card bills, countries around the world are dealing with a much bigger version of the same problem. Global debt has ballooned to an eye-watering $307 trillion by 2023, and it keeps growing like a teenager’s appetite during a growth spurt.
The COVID-19 pandemic pushed governments to spend money they didn’t have to keep their economies afloat. Now the bills are coming due, and they’re enormous. The United States alone owes more than $35 trillion, which equals about 100% of everything the country produces in a year.
By 2055, that debt could reach 156% of GDP, making the national budget look like a credit card statement that nobody wants to open.
Japan holds the dubious honor of having the highest debt compared to its economic size globally. Meanwhile, developing countries face an even tougher situation because they earn less money but still need to pay back what they borrowed, often in foreign currencies that become more expensive over time.
The real pain comes from interest payments. Italy will spend 4.5% of its entire economic output just on debt interest by 2025, which equals their entire education budget.
The United States will pay over $1 trillion annually in interest costs by 2025, surpassing what they spend on Medicaid and children’s services combined. That’s money that could have gone to schools, roads, or healthcare instead.
Adding fuel to this financial fire, inflation continues to make everything more expensive while economic growth slows down. Advanced economies are growing at only about 1.5% annually, while emerging markets manage slightly better at 4%.
However, slower growth means countries earn less money to pay their debts. Rising debt could reduce per capita income growth by 16% from 2025 to 2055 under current projections.
The situation creates a vicious cycle where governments must borrow more money to pay existing debts, pushing the problem further into the future. Similar to how individuals handle outstanding loan balances by transferring debt, governments often refinance or restructure their obligations to manage the financial burden. Central banks face the difficult challenge of maintaining inflation control while simultaneously supporting economic growth in this precarious environment. Ultimately, taxpayers bear the burden through higher taxes, reduced services, or both.
Without significant reforms, this global borrowing nightmare will continue squeezing government budgets and limiting their ability to invest in their citizens’ futures.
