Global Public Debt Reaches Alarming Levels, Warns IMF

The International Monetary Fund (IMF) has expressed deep concerns about the ongoing rise in global public debt, predicting that it will continue to climb and potentially hit an unprecedented $100 trillion by the end of this year. This staggering figure would represent 93% of the world’s Gross Domestic Product (GDP), as noted in the IMF’s latest Fiscal Monitor report.

While the percentage of public debt remained consistent at 93% as it did in 2023, the actual value of the debt is on the rise.

The IMF has highlighted that this trend does not appear to be reversing anytime soon. In its projections, the organization forecasts a debt-to-GDP ratio of 100% by the end of the decade.

To put this into perspective, the private debt held by households and non-financial private enterprises stood at 146% of global GDP by the close of 2023, according to IMF data.

Era Dabla-Norris, the IMF’s Deputy Director of the Fiscal Affairs Department, emphasized during an online press conference that the situation may be even more dire than anticipated.

“Experience tells us that debt projections tend to be overly optimistic.

This often occurs because governments are too hopeful about their growth forecasts or because fiscal reforms are rarely realized in full,” she explained.

Although many governments have already announced budget adjustments, these measures are unlikely to stabilize or reduce public debt, even if fully implemented.

Major economies, particularly the United States and China, continued to see their debt levels rise without any signs of improvement.

To effectively reduce public debt, Dabla-Norris suggested that a fiscal adjustment of 3.8% of GDP would be necessary each year until the end of the decade, a significant increase from the previously anticipated 1%.

However, cutting public spending too drastically could have detrimental effects on economic growth, potentially exacerbating inequalities and increasing debt ratios.

The IMF has reiterated the importance of rebuilding fiscal buffers that have been depleted by successive crises since the onset of the COVID-19 pandemic.

This rebuilding is essential for governments to respond adequately to future challenges.

At the same time, the IMF recognized the urgent need for states to make substantial investments to combat climate change and adapt societies to the visible consequences already being felt.

Rising interest rates over the past three years have severely affected the public finances of many countries by increasing borrowing costs.

According to the World Bank, around 40 countries currently face or are nearing a debt crisis, largely due to a significant rise in debt servicing costs.

© Agence France-Presse

Source: Le Mauricien