(Bloomberg) -- Global debt climbed by $10 trillion in the first half of 2023, resuming its upward march as a share of the world economy after falling for close to two years as inflation surged, according to the Institute of International Finance.

Liabilities clocked in at record $307 trillion, up a “staggering” $100 trillion over the past decade, the group representing the world’s largest international banks and financial institutions said in a report released Tuesday. The US, Japan, the UK and France led the latest advance.

As a share of world gross domestic product, global debt climbed to 336% from 334% at the end of last year and is projected by the IIF to hit 337% by the end of 2023, largely driven by sizable government budget deficits. That’s still below the 362% level hit in the first quarter of 2021.

“The sudden rise in inflation was the main factor behind the sharp decline in debt ratio over the past two years, allowing many sovereigns and corporates to inflate away their local currency,” IIF Director Emre Tiftik and fellow researchers said in a report.

A bright spot in  the report: Household debt as a share of advanced economies dropped to its lowest level in two decades in the first half of 2023, according to the IIF.

“Should inflationary pressures persist in mature markets, the health of household balance sheets, particularly in the U.S., would provide a cushion against further rate hikes,” Tiftik and his fellow researchers wrote.

After boosting interest rates by more than five percentage points over the last 18 months, Federal Reserve Chair Jerome Powell and his colleagues are widely expected to hold them steady at their two-day meeting starting Tuesday. Investors are divided over whether that will mark the end of the Fed’s most aggressive credit-tightening campaign in decades.

The institute voiced concern over the high levels of government debt, especially in emerging and frontier markets, zeroing in on liabilities in local currencies. 

“Domestic government-debt levels are at alarming levels in many countries,” the report said. “Most worryingly, the global financial architecture is not adequately prepared to manage risks associated with strains in domestic debt markets.”

--With assistance from Alex Tanzi.

©2023 Bloomberg L.P.