IMF projects global public debt to surpass $100trn by year-end

Global public debt is projected to exceed $100 trillion by the end of this year, a staggering figure that represents approximately 93 percent of world’s gross domestic product (GDP), according to a new report by the International Monetary Fund (IMF).

The report, entitled, ‘Global Public Debt Is Probably Worse Than It Looks,’ authored by Era Dabla-Norris, Davide Furceri, Raphael Lam, and Jeta Menkulasi, indicates that public debt levels could approach 100 percent of GDP by 2030, marking a significant increase of 10 percentage points of GDP since 2019, prior to the pandemic.

“Global public debt is very high,” noted the report. While the situation varies across different nations, with two-thirds expected to see stabilisation or a decline in their public debt, the IMF cautions that many countries might face even higher debt levels than currently projected. “Future debt levels could be even higher than projected, and much larger fiscal adjustments than currently projected are required to stabilise or reduce it with a high probability,” the report added.

The IMF emphasised the need for countries to address debt risks proactively, advocating for carefully designed fiscal policies that safeguard growth and protect vulnerable households. The report also pointed to a concerning fiscal outlook for several nations due to three key factors: significant spending pressures, an optimistic bias in debt projections, and substantial unidentified debt.

“Previous IMF research has shown that fiscal discourse across the political spectrum has increasingly tilted toward higher spending,” the authors noted, adding that nations will need to increase expenditures to address issues related to aging populations, healthcare demands, climate adaptation, and defense spending amid rising geopolitical tensions.

“However, past trends suggest that debt projections often underestimate actual outcomes. Realized debt-to-GDP ratios five years ahead can be 10 percentage points of GDP higher than projected on average,” the report stated.

“The Fiscal Monitor introduces a new ‘debt-at-risk’ framework that connects current macro-financial and political conditions to a range of potential future debt outcomes. This innovative approach aims to assist policymakers in quantifying risks to the debt outlook and identifying their sources. “This framework shows that in a severely adverse scenario, global public debt could reach 115 percent of GDP in three years—nearly 20 percentage points higher than currently projected,” the authors warned.

Several factors could lead to this increase, including weaker economic growth, tighter financing conditions, fiscal slippages, and greater economic uncertainty. The report highlighted that countries are becoming increasingly vulnerable to global factors affecting their borrowing costs, particularly due to spillovers from heightened policy uncertainty in significant economies like the United States.

Sizable unidentified debt, which has been a persistent issue, poses another risk to public debt levels.

“An analysis of more than 30 countries finds that 40 percent of unidentified debt stems from contingent liabilities and fiscal risks, with most related to losses in state-owned enterprises,” the report explained. Historical data indicates that unidentified debt typically ranges from 1 to 1.5 percent of GDP on average, surging during financial stress periods.”

Given that public debt may be higher than anticipated, the IMF warned that current fiscal efforts might be insufficient. “Our analysis suggests that current fiscal adjustments—on average, of 1 percent of GDP over six years by 2029—even if implemented in full, are not enough to significantly reduce or stabilise debt with a high probability,” the report cautioned.

A cumulative tightening of approximately 3.8 percent of GDP would be necessary for an average economy to achieve a high likelihood of debt stabilisation.

Moreover, the report emphasised that large fiscal adjustments, if not well-calibrated, could lead to significant output losses and exacerbate inequality. “A careful design is thus needed to mitigate the costs of the adjustment and to garner public support for needed fiscal measures,” the authors stated.

They recommended that advanced economies focus on entitlement reforms, reprioritising expenditures, and enhancing tax revenues, while emerging markets should broaden tax bases and improve revenue administration. The authors also stressed the importance of a measured pace of adjustment to alleviate fiscal risks while minimising negative impacts on economic output and inequality.