UAE government debt-to-GDP ratio falls in Q2 2026 as Saudi Arabia’s rises, with both remaining well below major advanced economies, IIF data shows.
The UAE’s government debt declined to 31 per cent of GDP in the second quarter of 2026, down from 32.9 per cent during the same period a year earlier, according to the latest Global Debt Monitor from the Institute of International Finance (IIF).
The ratio is among the lowest across the major economies covered by the report, which comes as the IIF warned that global debt has climbed past a record $365 trillion (Dh1,339 trillion).
While UAE government debt declined relative to the size of the economy, borrowing increased across other sectors. Financial sector debt recorded the largest rise, climbing to 55.8 per cent of GDP from 51.9 per cent a year earlier.
Non-financial corporate debt increased slightly to 53.6 per cent of GDP from 52.7 per cent, while household debt rose to 25.8 per cent from 24.2 per cent.
In Saudi Arabia, government debt increased 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 climbed to 13 per cent from 10.2 per cent, while non-financial corporate debt rose to 46.6 per cent from 45.2 per cent. Household debt also edged higher, reaching 31.7 per cent of GDP from 31.2 per cent.
The IIF said Saudi Arabia was among the biggest issuers of emerging-market sovereign Eurobonds this year, alongside Mexico, Poland and Türkiye. The kingdom’s foreign-currency government debt stands at 13.3 per cent of GDP, with the entire amount denominated in US dollars.
Across the Middle East, government debt rose to an average of 35.9 per cent of GDP from 32.3 per cent a year earlier. Kuwait recorded an increase to 18.6 per cent from 8.8 per cent, while Bahrain’s government debt climbed to 150 per cent of GDP from 139.4 per cent.
Global debt
Worldwide debt increased by more than $10 trillion during the first half of 2026. That was less than half the $21 trillion increase recorded during the same period last year, as higher interest rates, rising energy prices and the conflict with Iran weighed on borrowing, according to the IIF.
Emerging markets accounted for the majority of the increase, with their combined debt rising by $6.5 trillion to more than $110 trillion, led by China. Excluding China, emerging-market debt reached a record $38 trillion.
The global debt-to-GDP ratio now stands at around 310 per cent, about 25 percentage points below its early-2021 peak. However, the IIF cautioned that the decline largely reflects higher inflation boosting nominal economic growth rather than a significant reduction in debt levels.
Interest bill overtakes AI and defence
Average government borrowing costs across the G7 have climbed to their highest level since mid-2008, while annual interest expenses have risen by nearly 85 per cent.
Advanced economies spent more than $3.3 trillion on interest payments for internationally traded government bonds over the past year. That is higher than estimated global spending on defence at $3.1 trillion, artificial intelligence at $2.6 trillion and clean energy at $2.3 trillion.
The IIF said persistent fiscal deficits in the US, France, the UK and Japan increasingly resemble challenges traditionally associated with debt-stressed emerging markets. It also warned that upcoming elections, including the US midterms and national votes in France, Spain and Italy in 2027, could add pressure on fiscal discipline.
US non-financial corporate debt has reached $24 trillion, driven partly by a surge in AI-related borrowing. Private credit now accounts for just over 5 per cent of this debt, compared with around 1 per cent in 2014. While the IIF has found little evidence so far that AI-related debt issuance is crowding out government borrowing, it said that could change if the supply of long-dated corporate bonds continues to increase.
More borrowing ahead
The IIF expects global spending on healthcare, energy, AI and IT, and defence to reach around $25 trillion this year, equivalent to roughly a fifth of global economic output. With a growing share of this spending expected to be financed through capital markets, the institute anticipates sustained debt issuance. Rising healthcare and public pension costs are also expected to add further pressure to government finances.
Emerging markets face more than $3.5 trillion in debt redemptions in 2026, the highest level on record, although financing conditions remain favourable. A weaker US dollar has provided some support, while even more vulnerable borrowers, including Bolivia and Gabon, have returned to international markets.
The IIF urged governments to take advantage of current conditions to strengthen relationships with investors. It also said Senegal’s debt reprofiling under the Common Framework would be an important test of investor sentiment towards developing economies.
Meanwhile, the ESG debt market had grown to around $9 trillion by mid-September, up from $7.8 trillion at the end of 2025, with green bond issuance on track for a record year.
