Global public debt is forecast to exceed $100tn by the end of this year, according to the IMF, which has warned that major economies’ plans to stabilise borrowing “fall far short of what is needed”.
The fund said on Tuesday that government debt, which ballooned during the Covid-19 pandemic, had continued to rise as countries embrace higher spending to stimulate economic growth. Debt was set to approach 100 per cent of global GDP by the end of the decade, it added.
“Risks to the debt outlook are heavily tilted to the upside” and there are “good reasons to believe that future debt levels could be higher than currently projected”, it said in a report.
Debt was forecast to continue rising in countries including the US, the UK, Brazil, France, Italy and South Africa, the IMF said.
It added that government spending to fund the transition to greener energy, ageing populations and security concerns was likely to add to fiscal pressures over the coming years.
With inflationary pressures receding and the US Federal Reserve, the Bank of England and the European Central Bank lowering borrowing costs, “now is an opportune time” for economies to start rebuilding fiscal buffers, the IMF said.
It added that “in countries where debt is projected to increase further . . . delaying action will make the required adjustment even larger”. It called for “cumulative fiscal adjustment” — tax rises or spending cuts — of 3 per cent to 4.5 per cent of GDP to bring down debt across the world.
“Advanced economies should reprioritise expenditures, advance entitlement reforms, increase revenues through indirect taxes where taxation is low and remove inefficient tax incentives,” it said.
The IMF’s report comes as China tries to rejuvenate its economy with a huge fiscal stimulus and just weeks before the US presidential election.
The economic plans of both Donald Trump and Kamala Harris are forecast to swell US federal debt by trillions of dollars, according to a recent report by the Committee for a Responsible Federal Budget.
Concerns about rising levels of borrowing have contributed to a sell-off in government bond markets in recent weeks, including in the UK and France.
UK chancellor Rachel Reeves is expected by some economists to use her Budget this month to tweak the definition of public debt used for the UK’s fiscal rules to allow for more borrowing.
The ECB said in a report this year that long-term challenges were “likely to exert pressure on public finances” in the euro area.
Hitting a government debt-to-GDP ratio of 60 per cent by 2070, from today’s debt levels, would require governments to “immediately and permanently” increase their primary balance — the fiscal balance excluding net interest payments on public debt — by 2 per cent of GDP on average, the ECB said.
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