- Global bond markets will face "mini boom-bust cycles," the Institute of International Finance said.
- Growing deficits will be made more extreme by next year's election cycle.
Surging deficits and an unrestrained rise in global debt could unleash new volatility in fixed-income markets, the Institute of International Finance forecast in a Thursday note.
Between 2024 and 2027, government overspending is expected to add $5.3 trillion per year to international debt, at a time when higher-for-longer interest rates are already skewing investor sentiment.
This could trigger 'mini boom-bust cycles' to become a larger theme in fixed income, the institute said. It's the sort of volatility US Treasurys recently underwent, as worries of increased government borrowing helped fuel last month's massive bond sell-off.
Higher deficits aren't limited to the US, and a number of government budgets are becoming constrained by a higher share of interest expenses, such as Egypt, India, Malaysia, Pakistan, South Africa, and Turkey.
But the trend could also accelerate as over 50 countries are headed into an election season in 2024, the note added. Currently ruling parties may face increased difficulty amid rising private sector debt woes, and worsening geopolitical conditions.
"If upcoming elections lead to populist policies aimed at controlling social tensions, the result could be still more government borrowing and still less fiscal restraint," it said, adding, "An abrupt surge in government expenditures during this global election cycle could further increase the interest burden for many sovereign debtors—from already high levels."
In 2023, global government debt jumped to $88.1 trillion, an 8% increase from a year earlier.
Meanwhile, though the global debt-to-GDP ratio — a measure of whether international growth is keeping up with increasing debt — remained relatively stable at 333%, this varied by geography.
The debt ratio in emerging markets hit an all-time high of 255%. The surge was more evident in countries such as Russia, China, and Saudi Arabia, the institute said.
"Looking ahead, we anticipate the global debt ratio to resume its upward trend as global growth momentum remains weak, and inflationary pressures continue to ease," it noted.