Biden’s net zero borrowing binge fuels $2.1 trillion global debt surge

Joe Biden’s borrowing splurge on net zero programmes has helped fuel a $2.1 trillion (£1.6 trillion) jump in global debt, as warnings mount over unsustainable government spending.

Global debt surged to $312 trillion in the first six months of the year, as the world’s largest economy loaded up on borrowing.

The Institute of International Finance, which published the figures, warned that the inability of political leaders to bring down debt levels was a threat to productivity and growth.

The US and China were the biggest drivers of the surge in global debt, the IIF said, as Xi Jinping battled to prop up the economy following a property crash and years of strict lockdown restrictions.

In the US, Joe Biden has overseen debt levels rise from 117.6pc to 118.9pc in a year.

The US Congress watchdog this year warned the president that the US risked facing a Liz Truss-style shock if unchecked borrowing continued.

Mr Biden’s Inflation Reduction Act is expected to cost $1.2 trillion (£900bn) over 10 years, according to Goldman Sachs. Net zero is a core plank of the programme, with $390bn earmarked to tackle climate change and $60bn being spent on clean energy initiatives, including the promotion of solar and wind power.

In China, government debt relative to the size of the economy rose to 86.3pc from 79.9pc in the first half of the year.

It comes as Mr Xi has struggled to revive growth after a disappointing post-Covid rebound.

An imploding property sector and debt-straddled local governments have added to China’s woes, as it has struggled to hit its growth targets.

The shift to net zero is likely to intensify surging debt levels, the IIF warned.

It said the “new era of industrial policies to combat climate change” meant government debt globally was projected to rise by 58pc to $145 trillion by 2030.

It is on track to hit $440 trillion by 2050.

The IIF warned that already dire productivity growth risked becoming worse as debt-bloated governments show little resolve to change.

It said it had significant concerns over the “apparent lack of political will to address rising sovereign debt levels” in both rich and poorer countries.

It highlighted how governments have intervened over the past two decades to shore up public finances in times of crisis, warning of “the misallocation of resources toward low-productivity projects”.

It comes amid significant challenges posed by ageing demographics, it noted.

Separately on Wednesday, the World Economic Forum warned that high debt levels are a major risk to stability in rich countries.

The US faces debt servicing costs of $870bn this year, surpassing its entire defence budget of $822bn.

Such concerns come after governments in many countries went on a borrowing splurge to cope with the pandemic and in Europe subsequently the energy crisis.

Falling interest rates will only fuel borrowing further after the Federal Reserve delivered its first cut last week, the IIF said.