UAE Government Debt Falls As Global Debt Hits A Record Dh1,339 Trillion

(MENAFN- Khaleej Times) The UAE's government debt fell to 31 per cent of GDP in the second quarter of 2026, down from 32.9 per cent a year earlier, according to the latest Global Debt Monitor from the Institute of International Finance (IIF).

The figure is one of the lowest among the major economies covered in the report, in a week when the IIF warned that global debt has passed $365 trillion (Dh1,339 trillion).

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While public borrowing eased relative to output, other parts of the UAE economy took on more debt. Financial sector debt rose to 55.8 per cent of GDP from 51.9 per cent, the biggest increase of any sector in the country. Non-financial corporate debt edged up to 53.6 per cent from 52.7 per cent, and household debt rose to 25.8 per cent from 24.2 per cent.

Saudi Arabia's government debt climbed to 34.3 per cent of GDP from 28.9 per cent a year earlier, a rise of 5.4 percentage points. Financial sector debt rose to 13 per cent from 10.2 per cent, corporate debt to 46.6 per cent from 45.2 per cent, and household debt to 31.7 per cent from 31.2 per cent.

The IIF said Saudi Arabia was among the leading issuers of emerging market sovereign Eurobonds this year, alongside Mexico, Poland and Türkiye. The kingdom's government debt in foreign currency stands at 13.3 per cent of GDP, all of it in US dollars.

Across the Middle East, government debt averaged 35.9 per cent of GDP, up from 32.3 per cent. Kuwait's rose to 18.6 per cent from 8.8 per cent, while Bahrain's climbed to 150 per cent from 139.4 per cent.

Global debt

Worldwide, debt grew by more than $10 trillion in the first half of 2026. That is less than half the $21 trillion increase in the same period last year, as higher interest rates, surging energy prices and the conflict with Iran weighed on borrowers, the IIF said.

Emerging markets accounted for most of the rise, with debt up $6.5 trillion to over $110 trillion, led by China. Excluding China, emerging market debt reached a record $38 trillion.

Global debt-to-GDP stands at about 310 per cent, roughly 25 percentage points below its early-2021 peak. The IIF cautioned that this reflects higher inflation lifting nominal growth, rather than real deleveraging.

Interest bill overtakes AI and defence

Average government borrowing costs across the G7 are the highest since mid-2008, and annual interest expenses are nearly 85 per cent higher. Advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds over the past year. That exceeds estimated global spending on defence ($3.1 trillion), AI ($2.6 trillion) and clean energy ($2.3 trillion).

The IIF said persistent deficits in the US, France, the UK and Japan echo problems long associated with debt-stressed emerging markets. It warned that elections, including US midterms and national polls in France, Spain and Italy in 2027, could weaken fiscal discipline.

US non-financial corporate debt reached $24 trillion amid a surge in AI-related borrowing. Private credit now accounts for just over 5 per cent of that debt, up from about 1 per cent in 2014. The IIF found little evidence so far that AI issuance is crowding out government borrowing, but said that could change if long-dated corporate bond supply grows.

More borrowing ahead

The IIF expects spending on healthcare, energy, AI and IT, and defence to reach about $25 trillion this year, roughly a fifth of global output. It said a growing share will be funded through the markets, pointing to sustained future issuance. Rising healthcare and public pension costs are a further pressure on government finances.

Emerging markets face over $3.5 trillion of debt redemptions in 2026, a record, but funding conditions remain favourable. A softer dollar has helped, and even fragile borrowers such as Bolivia and Gabon have returned to international markets. The IIF urged governments to use this window to strengthen investor relations, and said Senegal's debt reprofiling under the Common Framework would be a key test for developing-country sentiment.

The ESG debt market reached about $9 trillion by mid-September, up from $7.8 trillion at the end of 2025, with green bond issuance on course for a record year.

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