The International Monetary Fund (IMF) reported on Tuesday that global public debt is projected to exceed $100 trillion for the first time this year, with growth potentially accelerating beyond initial forecasts. This increase is largely attributed to a political climate favoring heightened spending amidst slow economic growth, which is driving up both borrowing demand and costs.
According to the IMF’s latest fiscal monitoring report, the scale of global public debt is expected to reach 93% of global GDP by the end of this year and could hit 100% by 2030. This surpasses the peak of 99% witnessed during the COVID-19 pandemic and is 10 percentage points higher than the ratio prior to the pandemic in 2019.
As the annual meetings of the IMF and World Bank approach in Washington just one week later, the report suggests that there are substantial reasons to believe future debt levels could far exceed current estimates. One key factor is the U.S. government’s intention to increase spending.
The IMF notes, “Uncertainty in fiscal policy is rising, and the political lines related to taxation are becoming increasingly difficult to move. The pressures for spending to address challenges such as green transitions, aging populations, security issues, and long-term development are mounting.”
With just three weeks to go until the U.S. presidential election, both candidates have pledged to implement new tax cuts and spending policies, which could lead to a multi-trillion-dollar increase in the federal deficit. The Committee for a Responsible Federal Budget (CRFB) estimates that the Republican candidate, Donald Trump, could add around $7.5 trillion in debt over the next decade with his tax plan, whereas the Democratic candidate, Kamala Harris, could see an increase of about $3.5 trillion.
The IMF emphasizes that debt forecasts often significantly underestimate actual outcomes. Given the sluggish economic growth, tightening financial conditions, and increasing uncertainty surrounding fiscal and monetary policies in major economies such as the U.S. and China, global debt levels may expand further. Under severe adverse conditions, the debt-to-GDP ratio could potentially reach 115% within just three years, which is 20 percentage points higher than current projections.
The IMF has reiterated its call for enhanced fiscal consolidation, stating that with the economy currently stable and unemployment low, this is an opportune time for such measures.
The report warns that countries like the U.S., Brazil, the UK, France, Italy, and South Africa, where debt is expected to continue rising, may face costly repercussions.
