Record Debt in World’s Richest Nations: What It Means for Global Investors and Business Growth
LONDON — For decades, crushing debt has plagued poor and lower-income nations. However, the current threat of unsustainable borrowing now originates from some of the world’s richest countries.
Record or near-record debt levels in the United States, Britain, France, Italy, and Japan pose significant risks to global economic growth and financial stability.
Domestically, these countries must allocate substantial portions of their budgets to interest payments—funds that could otherwise support healthcare, infrastructure, housing, technological innovation, or education.
The insatiable demand for loans has driven borrowing costs higher, consuming an increasing share of taxpayer money. This dynamic also raises costs on business, consumer, mortgage, and credit card loans and contributes to inflation.
Perhaps most concerning, elevated debt burdens—even in economies with low unemployment and relative stability, such as the U.S.—limit governments’ ability to respond effectively during crises.
“You want to be able to spend big and spend fast when you need to,” said Kenneth Rogoff, Harvard University economics professor.
In scenarios like financial crises, pandemics, wars, or increased social services demands due to artificial intelligence disruptions or climate disasters, governments find it increasingly challenging and costly to borrow when already heavily indebted.
At the recent World Economic Forum in Davos, while President Donald Trump took center stage, finance ministers expressed anxiety about funding essential needs—from military enhancements to energy grid upgrades.
Government borrowing during strong economic periods and low interest rates can boost growth and aid recovery during downturns. This intensive borrowing trend began after the 2008 financial crisis, intensified by COVID-19 relief spending amid rising interest rates and slower growth.
Despite these efforts, debt levels have not fallen. Currently, in six of the Group of Seven (G7) nations, national debt matches or surpasses annual economic output, according to the International Monetary Fund.
Demographic challenges and sluggish growth further strain many economies. In Europe, Britain, and Japan, aging populations increase healthcare and pension expenses while shrinking the workforce that funds these costs through taxes.
Infrastructure rebuilding and advanced technology investments are urgent worldwide. A European Union study estimated the 27-member bloc needs approximately $900 billion over time to compete effectively in areas such as artificial intelligence, shared energy systems, supercomputing, and workforce training.
In Britain, upgrading infrastructure over the next decade will cost at least £300 billion ($410 billion), says London-based think tank Future Governance Forum, with significant additional funds required to revive the struggling National Health Service.
In Italy, where debt equals 138% of GDP, attempts to cut public spending on health, education, and services have sparked intense protests, mirrored by France’s resistance to raising the retirement age amid political gridlock and a recent downgrade of its sovereign debt rating.
Global geopolitical risks have escalated. Heightened tensions between China and the U.S., an assertive Russia, and a confrontational American president have prompted militaries and governments to boost defense spending.
NATO members have pledged to increase defense budgets to 5% of GDP, while Japan has likewise expanded its military allocations.
Japan’s debt, already exceeding twice its GDP, faces further pressure following Prime Minister Sanae Takaichi’s announcement of a snap election and promises by all parties to raise spending and cut taxes. Takaichi’s proposal to suspend the consumption tax on food and nonalcoholic beverages could cost over $30 billion annually.
Historically, Japan managed its debt through ultra-low interest rates, but the Bank of Japan began easing this policy in 2024 to mitigate financial instability risks. The country’s debt is deeply embedded across its financial sector, including pension funds and banks, amid inflation pressures.
The combination of low interest rates and rising inflation particularly harms working- and middle-class families by reducing the value of their savings.
Takaichi’s announcement unsettled investors, causing bond yields to surge, a trend that extended to other markets. Japanese investors, traditionally large holders of U.S. Treasury securities, may now reduce these holdings in favor of higher-yield Japanese bonds. Consequently, U.S. 10-year Treasury yields reached their highest level since August.
This volatility alarms some investors. Ken Griffin, CEO of hedge fund Citadel, described the sell-off as a “clear warning” for other heavily indebted nations, including the U.S., emphasizing that no economy, even the largest, is immune.
Confidence in U.S. creditworthiness briefly faltered in April amid President Trump’s unpredictable tariff reversals, which triggered a spike in Treasury yields.
Despite this, U.S. debt remains a global safe haven, although Trump’s erratic economic policies and trade tensions contribute to the current unprecedented debt situation.
The U.S. national debt now stands at $38 trillion, approximately 125% of its economy’s size.
Trump has likened his approach to Max Bialystock in “The Producers,” promising extensive payouts with limited funds. Analysts predict increased spending ahead of the midterm elections.
This month, Trump pledged to raise military spending to $1.5 trillion in the next fiscal year, a move projected by the Committee for a Responsible Federal Budget to add $5.8 trillion in debt and interest over ten years.
Net interest payments on the national debt have tripled in five years to around $1 trillion, consuming 15% of U.S. federal spending—the second-largest expenditure after Social Security.
William J. Gale, coauthor of a recent U.S. debt study, warns that rising debt threatens America’s economic leadership, shakes investor confidence in Treasury bonds and the dollar, and burdens future generations.
“The more you consume now, the less you can consume later,” Gale noted.
This report originally appeared in The New York Times.
Special Analysis by Omanet | Navigate Oman’s Market
The mounting sovereign debt crises in major economies like the U.S., Japan, and Europe signal potential global financial instability and rising borrowing costs that could reverberate in Oman’s markets. For Omani businesses, this means increased risks of imported inflation and tighter access to international credit, while smart investors should consider diversifying portfolios and exploring sectors less sensitive to global debt shocks, such as infrastructure and technology. Entrepreneurs might find opportunity in addressing local needs for innovation and resilience amid global economic uncertainty.
