A new analysis by the International Monetary Fund, has it that global public debt is projected to reach $100 trillion by the end of this year, equivalent to 93% of the world’s gross domestic product, primarily driven by the economic activities of the US and China.
In its latest Fiscal Monitor, which provides an overview of global public finance trends, the IMF anticipates that debt levels could approach 100% of GDP by 2030. The report cautions that governments will face challenging decisions to stabilize their borrowing practices.
The IMF also highlights that debt is expected to rise in countries such as the US, Brazil, France, Italy, South Africa, and the UK, urging governments to take measures to control their debt levels.
“Waiting is risky: country experiences show that high debt can trigger adverse market reactions and constrains room for budgetary maneuver in the face of negative shocks,” it said.
With little political appetite to cut spending amid pressures to fund cleaner energy, support aging populations and bolster security, the “risks to the debt outlook are heavily tilted to the upside,” the IMF said.
Nations where debt stabilization is not anticipated account for more than half of the world’s total debt and approximately two-thirds of global GDP.
Using a “debt-at-risk” framework, the IMF found that the level of future debt in an extreme adverse scenario could reach 115% of GDP in three years, almost 20 percentage points higher than in the baseline projections.
“This is because high debt levels today amplify the effects of weaker growth or tighter financial conditions and higher spreads on future debt levels,” it said.
The debt-at-risk metric for advanced economies has decreased from its pandemic highs and is currently estimated at 134% of GDP, while it has increased to 88% for emerging market and developing economies.
Although slowing inflation and declining interest rates provide governments with an opportunity to improve their fiscal situations, the IMF noted that there is little indication of any urgency to take action.
“Current fiscal adjustment plans fall far short of what is needed to ensure that debt is stabilized (or reduced) with high probability,” it said.