UAE Debt Drops to 31% of GDP, Global Debt Hits Record

In Q2 2026, the UAE’s public debt fell to 31% of GDP, the lowest among major economies, even as global debt climbed past $365 trillion. While government borrowing eased, financial, corporate, and household debt rose. The report highlights rising debt in Saudi Arabia and the Middle East, and warns o…

By Felo News Desk · Published Thu, 24 Sep 2026 09:32:47 GMT

The Institute of International Finance (IIF) released its latest Global Debt Monitor, revealing that the United Arab Emirates’ government debt fell to 31% of gross domestic product (GDP) in the second quarter of 2026, down from 32.9% a year earlier. The reduction places the UAE among the lowest‑debt major economies in the world, a notable contrast to the record‑setting rise in global debt, which has now surpassed $365 trillion (Dh1,339 trillion).

Government Debt Declines Amid Sectoral Shifts

While the UAE’s sovereign borrowing relative to output eased, other parts of the economy took on more debt. The financial sector’s debt rose to 55.8% of GDP from 51.9%, the largest increase among all sectors. Non‑financial corporate debt edged up to 53.6% from 52.7%, and household debt climbed to 25.8% from 24.2%. These figures suggest that the country’s private and financial actors are absorbing a larger share of the debt load, even as the state pulls back.

Regional Comparisons: Saudi Arabia and the Middle East

Saudi Arabia’s government debt rose to 34.3% of GDP, up from 28.9% a year earlier, marking a 5.4‑percentage‑point increase. The kingdom’s financial sector debt climbed to 13% from 10.2%, corporate debt to 46.6% from 45.2%, and household debt to 31.7% from 31.2%. Saudi Arabia, along with Mexico, Poland, and Türkiye, emerged as a leading issuer of emerging‑market sovereign Eurobonds this year, underscoring the region’s growing appetite for foreign‑currency debt.

Across the Middle East, government debt averaged 35.9% of GDP, up from 32.3% in the previous year. Kuwait’s debt surged to 18.6% from 8.8%, while Bahrain’s climbed to 150% from 139.4%. These jumps reflect the region’s broader trend of increasing sovereign indebtedness, despite some countries pulling back on public borrowing.

Global Debt Landscape and Future Outlook

Worldwide, debt grew by more than $10 trillion in the first half of 2026, a figure that is less than half the $21 trillion rise seen in the same period last year. Higher interest rates, surging energy prices, and the conflict with Iran have weighed on borrowers, according to the IIF. 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 roughly 310%, about 25 percentage points below its early‑2021 peak. The IIF cautions that this decline largely reflects higher inflation lifting nominal growth, rather than real deleveraging. Interest costs are also rising: government borrowing costs across the G7 are the highest since mid‑2008, with annual interest expenses nearly 85% higher than a decade ago. Advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds over the past year, surpassing global spending on defence, artificial intelligence, and clean energy.

In the United States, non‑financial corporate debt reached $24 trillion amid a surge in AI‑related borrowing. Private credit now accounts for just over 5% of that debt, up from about 1% in 2014. The IIF found little evidence that AI issuance is crowding out government borrowing yet, but warned that long‑dated corporate bond supply could change that dynamic.

What Lies Ahead: Rising Spending and Debt Projections

The IIF projects that spending on healthcare, energy, AI and IT, and defence will reach about $25 trillion this year, roughly a fifth of global output. A growing share of this spending is expected to be financed through the markets, indicating sustained future issuance. Rising healthcare and public pension costs will further pressure 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 urges governments to use this window to strengthen investor relations, noting Senegal’s debt reprofiling under the Common Framework as 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 track for a record year. This growth reflects a broader shift toward sustainable financing, even as traditional debt markets grapple with higher interest rates and geopolitical uncertainties.

In summary, while the UAE’s sovereign debt has eased, the overall debt landscape is becoming more complex, with private and financial sectors shouldering a larger burden. Global debt continues to climb, driven largely by emerging markets, and interest costs are rising faster than ever. Policymakers will need to navigate these dynamics carefully to maintain fiscal stability and support future growth.

Key facts

• UAE’s sovereign debt fell to 31% of GDP in Q2 2026
• Financial, corporate, and household debt rose in the UAE
• Saudi Arabia’s government debt increased to 34.3% of GDP
• Global debt surpassed $365 trillion, driven by emerging markets
• Interest costs in advanced economies are at their highest since 2008
• ESG and green bond issuance are expanding rapidly

Why it matters

The shifting debt dynamics highlight the UAE’s move toward fiscal prudence while private sectors absorb more risk, a trend mirrored globally. Understanding these patterns is vital for investors, policymakers, and businesses navigating an increasingly leveraged economy.

Frequently asked questions

Why is the UAE’s government debt decreasing?

The UAE has reduced its sovereign borrowing relative to GDP, likely due to fiscal consolidation and a focus on debt sustainability.

What does the rise in financial sector debt mean?

It indicates that banks and other financial institutions are taking on more leverage, which could increase systemic risk if not managed carefully.

How does global debt growth affect the UAE?

Higher global debt can lead to tighter global credit conditions, potentially raising borrowing costs for the UAE and other emerging markets.

What are the implications of rising interest costs?

Higher interest payments can strain government budgets, limit fiscal flexibility, and may lead to higher taxes or reduced public spending.

Sources

• [1] khaleejtimes.com — originally reported as “UAE government debt falls as global debt hits a record Dh1,339 trillion”