In this episode, we examine Debt Overhang & Crowding Out — the fourth of the Top 10 Geopolitical Risks for Business in 2026.
We explore how decades of ultra-low interest rates created a global dependence on cheap credit. As rates normalise, the political and corporate debt burdens accumulated during that era are constraining growth, investment, and strategic freedom.
Key Themes
- From cheap credit to structural pressure: The long shadow of post-COVID inflation and sustained high interest rates is reshaping both fiscal and corporate balance sheets.
- Sovereign debt and political risk: Rising debt-to-GDP ratios in the US, Europe, and Japan highlight the limits of fiscal space and the potential for governance paralysis.
- Corporate debt and stagnation: Over-leveraged firms face limited room to manoeuvre, leading to downsizing, delayed innovation, and suppressed hiring.
- AI, technology, and long-term profitability: We assess how debt levels could determine which tech firms survive the current wave of AI-driven investment.
- Global South vulnerability: Fragile tax bases and reliance on external creditors expose emerging economies to IMF conditionality, unrest, and political instability.
- Interconnected risk: High debt levels signal not just financial weakness but systemic governance strain — linking fiscal policy, national security, and business continuity.
Signals to Monitor
- Sharp tax increases or emergency budgets
- Rising bond yields and refinancing challenges
- Large-scale layoffs, asset sales, or corporate restructurings
- IMF programmes tied to subsidy cuts in developing economies
