Why are wealthy nations struggling with debt?

Your parents may have long warned you about going into debt. Yet, debt levels are on the rise across the globe with some of the world’s wealthiest and most developed nations struggling to balance the books.

France, which is grappling with a debt crisis, has just seen yet another prime minister leaving over its unpopular austerity budget. Japan’s debt is currently the largest margin in the developed world.

The United States is witnessing a pitched battle over a shutdown while the United Kingdom headed by the Labour government has said hard choices are ahead as it struggles to come up with a budget.

But what happened? What do we know?

Let’s take a closer look.

France

France on Monday saw Sébastien Lecornu leave as prime minister – the fourth in less than a year – over the country’s contentious budget. The shocking development came just hours after Lecornu had unveiled members of the French government including Roland Lescure, an ally of President Emmanuel Macron, as finance and economy minister.

Lecornu was tapped by Macron to follow François Bayrou, who in turn succeeded Michel Barnier. Both Bayrou and Barnier were toppled by parliament while attempting to pass an unpopular austerity budget.

France, which is the European Union’s second-largest economy, has a total debt of $6.5 trillion (Rs 5771.05 lakh crore). Its debt-to-GDP ratio is at 113.11 per cent, according to the International Monetary Fund. Spending continues to be a problem for France. Last year, its budget deficit was at $196 billion (Rs 173.97 lakh crore) – around 5.8 per cent of its gross domestic product (GDP). European agencies, meanwhile, want to keep that figure to around three per cent.

Fitch in September downgraded the country’s credit rating, saying its debt ratio “will continue to rise.” Bayrou’s government fell after plans to cut $51 billion (Rs 45.27 lakh crore) in public spending could not pass the fractured parliament. France’s inflation rate in September touched 1.20 per cent.

Unions have continued to reject cuts on social programmes, claiming French workers have been deeply affected by inflation in recent years. They also continue to protest against Macron’s pension reform that increased the minimum retirement age from 62 to 64. Thousands of people took to the streets of France last month in the ‘Block Everything’ protests. Meanwhile, the far-left are pushing a tax on the super-rich, known as the ‘Zucman tax’, that some economists estimate will bring in billions.

Now, Lecornu has resigned claiming that the job is impossible given the divisions in parliament between the left, centre and far-right — with none of them seemingly willing to cooperate with the other.

Macron, who shocked many in France by calling snap polls in June 2024, has vowed to serve out the rest of his term till 2027. However, Macron, whom many people derisively call the ‘president of the rich’, himself may be running out of room to manoeuvre.

Japan

Japan, which got its first woman prime minister, is set to ramp up spending . Tokyo reportedly is planning to spend $831 billion (Rs 737.63 lakh crore) on welfare programmes and infrastructure next fiscal in hopes of spurring growth. This even though Tokyo’s total debt is at $11.1 trillion (Rs 9863.35 lakh crore) – currently 250 per cent of its GDP – much of it driven by government spending.

This comes as Japan faces an ageing and shrinking population as a result of one of the world’s lowest birth rates and its economy remains sluggish. Inflation, meanwhile, is at 3.1 per cent this year – far above the Bank of Japan’s 2 per cent target. The previous prime minister Shigeru Ishiba had warned that the “country’s fiscal situation is undoubtedly extremely poor,” and, “worse than Greece’s.”

Ishiba, who lost the July elections after his Liberal Democratic Party performed poorly, resigned. He has now been succeeded by Sanae Takaichi.
Japan and France are also among the nations that could face fiscal trouble from the “bond vigilantes” – referring to investors who sell off bonds of countries whose finances they deem unsustainable.

“Japan is much closer to a debt crisis than people think,” economist Robin Brooks at the Brookings Institution told Asia Times. He added that the debt has left Japan in a difficult spot. If the Bank of Japan continues to keep interest rates low that could depreciate the yen – which in turn could spike inflation.

However, if it raises interest rates, this could further threaten Japan’s debt sustainability. “This Catch-22,” he says, “means a debt crisis is much closer than people think.” Brooks says the path forward is simple – Japan must either cut spending or raise taxes.

United States

The United States’ debt is currently at $58.8 trillion (Rs 52,262.48 lakh crore) – of which the government accounts for $37.9 trillion (Rs 33,649.38 lakh crore). With Washington’s debt-to-GDP ratio currently at 121 per cent, US President Donald Trump has vowed to reduce the size of the national government and is currently in a stand-off with Democrats. Meanwhile, experts say the US economy is losing billions of dollars every day while the impasse continues.

While Trump’s tariffs are bringing in billions of dollars in revenue every month, they also risk increasing inflation. In fact, many experts are already saying that price hikes are being felt by consumers and that the effect of Trump’s tariffs is set to kick in even further. Meanwhile, the jobs numbers in the United States are completely tanking – losing 32,000 private sector jobs in September. Inflation is creeping upwards at close to three per cent – a full point over the Reserve Bank’s goal of two per cent.

Making matters even worse for Trump, experts say his ‘big, beautiful bill’ could add over $3 trillion (Rs 2663.1 lakh crore) to the country’s deficit over the next decade. And that could be an undercounting.

The US Treasury says the country’s debt-to-GDP ratio is projected to increase to over 200 per cent by 2050 compared to the non-partisan CBO’s estimate of around 145 per cent. By 2100, if fiscal spending continues, the debt-to-GDP ratio could be at an incredible 535 per cent.

Thankfully for the US, its bonds – most of which are held by Japan, China, the United Kingdom, Canada, Luxembourg and private investors –
remain the bedrock of the global financial system with investors seeing them as an extraordinarily safe asset.

For now.

United Kingdom

The United Kingdom has a total debt of $6.3 trillion (Rs 5,592.51 lakh crore). Its public sector debt accounted for 96.4 per cent of GDP as of August 2025. UK government borrowing touched $24 billion (Rs 21.31 lakh crore), the biggest difference in half a decade.

Meanwhile, the economy, which increased by 0.4 per cent in June, was at zero in July. The jobs market is weakening with the Office for National Statistics figures showing the number of workers on firms’ payrolls falling for a seventh month in a row. Broader wage growth is also edging down.

UK Chancellor Rachel Reeves, who is set to deliver the Budget on 26 November, faces hard choices. While Labour had come to power promising not to raise the tax on income, insurance and VAT, Reeves has recently spoken about the need to display “economic responsibility” and take ‘tough decisions’.

Keir Starmer’s Cabinet is said to be divided on taxes with some pushing a wealth tax on the super-rich while others fear it could drive them away from the UK. The detractors point to a record number of millionaires leaving the country.

Reeves, explaining her about-turn, said, “I think everyone can see the world has changed, and we’re not immune to that change." Reeves has blamed US President Donald Trump’s tariffs, global conflicts and a possible productivity downgrade by the Office for Budget Responsibility (OBR). It remains to be seen if she can balance day-to-day expenditure with tax revenue by 2029.

“We have to respond to those… it’s very important that we maintain those commitments to economic stability,” she said. “I wish it wasn’t so, but I am Chancellor in the world as it is, not in the world that I might wish it to be.”

Why are they in this mess?

Experts have blamed the behaviour of wealthy nations during the pandemic. They say that they racked up a significant level of debt during the crisis. They say this was fine as long as interest rates remained low.

The Organisation for Economic Co-operation and Development (OECD) in its report earlier this year encapsulated the amount of government borrowing:

“Governments and companies borrowed $25 trillion (Rs 22192.5 lakh crore) globally from markets in 2024, nearly triple the amount in 2007,” the OECD’s economists wrote. “This increase is largely the legacy of the 2008 global financial crisis and the Covid-19 pandemic, in response to which large fiscal support packages, mainly funded via debt markets, helped avoid deeper recessions.”

However, after the central banks began increasing rates to battle inflation, this left politicians little room to manoeuvre – especially with the public already fed up with life during the pandemic.

“There’s a sense from the public that we’ve endured some tough times already,” Neil Shearing, the group chief economist at the consultancy Capital Economics, told The Guardian.

Brooks, speaking to Asia Times, said the situation is particularly dire in Japan but the UK and France are also at the beginning of crises.

“First, debt levels have risen sharply all across the world since Covid, which is making markets much less accepting of out-of-control fiscal policy,” Brooks told the newspaper. “Prior to Covid it seemed like inflation would always be low, which meant lower and flatter yield curves. That’s also gone out the window.”

With inputs from agencies