The International Monetary Fund is raising concerns over the rapid rise in global public debt, warning it could hit $100 trillion by the end of this year.
In its annual Fiscal Monitor report, the IMF projects that global debt will reach 100% of world GDP by 2030, with a large share stemming from the U.S. and China.
If the contributions from the U.S. and China are removed, the global debt-to-GDP ratio would fall by roughly 20%, the report states.
Vitor Gaspar, the IMF’s director of fiscal affairs, cautioned that “public debt may be worse than it looks,” citing a tendency for government debt assessments to lean on optimistic estimations, often leading to underestimations.
Governments worldwide are caught in what the IMF calls a “fiscal policy trilemma,” as they’re pressured to stimulate growth and ensure security while facing public resistance to tax increases.
This is especially challenging for low-income countries in sub-Saharan Africa, where limited tax revenue and high borrowing costs hinder their ability to reduce poverty and maintain stable finances.
Rising debt brings a risk that countries may face sudden market sell-offs if investors lose faith in their fiscal health, potentially spreading higher borrowing costs globally.
Even economically resilient countries like the U.S. and China, with relatively high debt tolerance, could feel the pressure if confidence wavers.
The U.S. Treasury Department recently announced a budget deficit of $1.833 trillion, marking the highest level outside the pandemic years.
Political gridlock has heightened the risk of government shutdowns as debates over spending highlight concerns around national fiscal health.
In business, these growing tensions underscore the importance of financial stability in driving both economic growth and investor confidence.
In China, the IMF noted in its August country report that local government spending heavily influences the country’s debt levels.
Despite a slight decrease in local government expenditures in 2023, the effect was negated by revenue declines from extended tax relief measures.
The IMF’s report points to a challenging road ahead, as countries grapple with their debt while striving to maintain financial stability and economic growth.
You May Also Like: