Al-Shal: Reckless Borrowing is a High-Speed Road and Danger of Falling into the Debt Trap
The Qatar Economic Conference was held in New York on September 20, with debt traps being among its key topics. According to Bloomberg, there is deep concern over the trajectory of sovereign debt, as highlighted by International Monetary Fund Managing Director Kristalina Georgieva. She noted that officials had previously projected global sovereign debt—meaning government debt—would reach approximately 100% of global GDP by 2031. However, the acceleration in borrowing has brought this milestone forward to 2029, effectively shortening the timeline by two years.
In its weekly report, Al-Shal Consulting stated that the Managing Director believes the remedy lies in fiscal policy adjustment. She emphasized that while there is widespread understanding of the severity of the debt situation, this awareness is not matched by sufficient reform measures.
She recalled a continuous dialogue with U.S. Treasury Secretary Brandon Beach, noting his awareness that unless the U.S. budget deficit and debt levels are reduced, the current situation is unsustainable.
Al-Shal added that the situation is further complicated by inflationary pressures, which have prompted the U.S. Federal Reserve to raise the base interest rate on the dollar. The Fed had paused rate hikes for three years. The new U.S. Federal Reserve Chair, Kevin Warsh, was appointed by President Trump last May. Despite this, Warsh defied the President’s preference for rates around 1% or lower. Rising interest rates, combined with persistent inflationary pressures due to limited energy supplies and disrupted supply chains, will lead to a continuous increase in debt servicing costs.
The Fund’s Managing Director pointed out that countries such as Qatar, Kuwait, and Iraq, through which all or most of their oil and gas exports pass via the Strait of Hormuz, are among the most severely affected, with their economies potentially recording significant contraction.
Al-Shal clarified: “We are not delving into the details of the global sovereign debt situation, which is undoubtedly alarming. The pressure on the dollar is even more concerning, given that U.S. public debt has reached approximately $40.1 trillion and financing costs are rising. What is happening globally is beyond the influence of our countries. Our concern is that our countries may fall into the debt trap that has previously ensnared many resource-rich nations, such as Argentina and Brazil, from whose effects they have not yet recovered.”
Al-Shal stressed that reckless borrowing, without reforming fiscal policies, coupled with rising financing costs and, subsequently, potential declines in oil prices and global asset prices, constitutes a fast and dangerous path into the debt trap.
In this context, Al-Shal reviewed a report published by the Institute of International Finance on September 23 regarding global debt, both sovereign and private. The private debt situation does not appear any better than the sovereign debt situation warned about by IMF Managing Director Kristalina Georgieva.
Al-Shal stated that total global public and private debt reached $365.5 trillion by the end of the first half of this year, setting a new absolute record and continuing to rise at unprecedented rates. New debt in the first half of the year exceeded $10 trillion, equivalent to roughly a quarter of U.S. sovereign debt.
He clarified that emerging economies accounted for approximately 65 percent of the increase in the first half of this year, or about $6.5 trillion, bringing their share to roughly $110.6 trillion, or about 30 percent of total global debt. At this level, the global debt-to-GDP ratio stands at approximately 310 percent. The Institute notes that this figure appears slightly lower than its level at the beginning of 2021, post-pandemic; however, the comparison is misleading, as the high nominal growth of global GDP driven by elevated inflation rates does not reflect a genuine decline in the relative debt burden.
The report notes that China’s public debt rose at the end of the first six months of this year to 103 percent of its GDP, up from around 95 percent at the end of the previous year. India, the largest partner in the BRICS bloc, had a debt-to-GDP ratio of approximately 77.5 percent, remaining stable over the year. Brazil’s debt stood at around 97 percent of GDP, up from approximately 89.5 percent at the end of the first half of 2025. Adding the $40.1 trillion in U.S. public debt and China’s non-financial corporate debt, which amounts to 144.6 percent of its GDP, highlights the rapid pace at which both the public and private sectors worldwide are being drawn into a debt trap.
Al-Shal pointed out that this significant expansion in borrowing, led by the world’s two largest economies—the United States and China—combined with a competitive expansion in the private sector, particularly by major artificial intelligence companies, occurs against a backdrop of high inflationary pressures on the global economy. This environment has forced the U.S. Federal Reserve to raise interest rates after a three-year pause, a situation that sets the stage for heightened risks. Unless borrowed funds generate returns exceeding their high and likely rising costs, the repercussions will be severe for countries that fail to align the cost of debt with its returns, across both public and private sectors.
