According to a recent report, the world's debt surged by $2.1 trillion in the first half of 2024, reaching a staggering $312 trillion.
As reported by the Telegraph, this significant increase is partly attributed to President Joe Biden's ambitious net zero programs, which have led to increased borrowing in the United States.
The Institute of International Finance (IIF), which published the figures, warned that political leaders' inability to reduce debt levels poses a threat to productivity and growth. The United States and China were identified as the primary drivers of this global debt surge, with both nations grappling with unique economic challenges.
President Biden's Inflation Reduction Act is expected to cost $1.2 trillion over the next decade, with a substantial portion dedicated to addressing climate change and promoting clean energy initiatives. This ambitious plan has contributed to the rise in U.S. debt levels, which have increased from 117.6% to 118.9% of GDP in just one year.
The net-zero agenda forms a core component of this program, with $390 billion earmarked for climate change initiatives and an additional $60 billion allocated to clean energy projects, including the promotion of solar and wind power. This significant investment in sustainable technologies has led to increased borrowing, raising concerns about long-term fiscal sustainability.
Critics argue that while these investments may yield environmental benefits, they come at a substantial cost to the nation's financial health. The U.S. Congress watchdog has warned of potential economic shocks if unchecked borrowing continues, drawing parallels to the financial turmoil experienced in the UK during Liz Truss's brief tenure as Prime Minister.
While the United States grapples with the costs of its green initiatives, China faces its own set of economic challenges that have contributed to the global debt surge. The world's second-largest economy has seen its government debt relative to GDP rise from 79.9% to 86.3% in the first half of 2024.
President Xi Jinping's efforts to revive growth following a disappointing post-Covid rebound have led to increased borrowing. The nation faces significant hurdles, including an imploding property sector and debt-strapped local governments, which have hindered its ability to meet growth targets.
These economic difficulties have prompted the Chinese government to implement various stimulus measures, further adding to the country's debt burden. The combination of internal economic pressures and external challenges has made it increasingly difficult for China to manage its debt levels effectively.
The IIF has warned that the global shift towards net zero emissions is likely to exacerbate the surge in debt levels. Projections suggest that government debt worldwide could increase by 58% to $145 trillion by 2030, potentially reaching $440 trillion by 2050.
This dramatic increase is attributed to the "new era of industrial policies to combat climate change," which requires significant investments in green technologies and infrastructure. While these investments are crucial for addressing climate change, they also pose substantial financial challenges for governments already struggling with high debt levels.
The IIF expressed concerns about the "apparent lack of political will to address rising sovereign debt levels" in both developed and developing nations. This reluctance to tackle mounting debt could have severe consequences for global economic stability and productivity growth in the coming decades.
The recent surge in global debt to $312 trillion, fueled in part by President Biden's net zero initiatives and China's economic challenges, has raised alarms about fiscal sustainability. The projected increase in government debt to $145 trillion by 2030 and $440 trillion by 2050 underscores the long-term financial implications of the transition to a low-carbon economy.
