Global debt on historical course. The world’s debt is climbing

The International Monetary Fund announces that by 2029 the public debt of countries will exceed 100%. global GDP and will continue to grow. This is a level not seen since 1948. The Fund appeals to governments to create buffers to protect public finances against the materialization of risk factors and to allocate funds to areas that enhance economic growth.

Global debt is growing

During the IMF’s annual meeting in Washington, the head of the department of fiscal affairs, Vitor Gaspar, indicated that in an “unfavorable but credible scenario” the ratio of global public debt to GDP could reach 123 percent by the end of the decade. This is still below the record of 132% recorded just after World War II, but significantly higher than in recent years.

In the Fiscal Monitor, the IMF explains that debt has been growing faster than expected before the COVID-19 pandemic. The reason was the costly support programs for citizens and companies that governments launched during the health crisis. The fund encourages spending to be shifted towards investments supporting long-term growth – including: in infrastructure and education – to help strengthen the global economy and make debt more sustainable.

The report notes that in a number of the largest economies the public debt to GDP ratio has already exceeded 100%. or will soon exceed. This group includes six of the seven G7 countries: the USA, Canada, Japan, Great Britain, France and Italy, as well as, among others, China. At the same time, in many countries there is still pressure to increase spending with limited acceptance for increasing taxes. The IMF lists the sources of pressure as the need to finance defense, the effects of natural disasters, the impact of breakthrough technologies, demographic factors and development needs. These requirements collide – as emphasized – with political restrictions on the increase in tax burdens and with weakening public awareness of fiscal barriers.

Vulnerable economies

Emerging economies and low-income countries are particularly vulnerable. Even with a relatively lower debt-to-GDP ratio, they may have difficulty servicing it and managing risk. The IMF indicates that as many as 55 countries are struggling with debt problems or are exposed to high risk, even though their debt-to-GDP ratio remains below 60%.

The IMF’s conclusion is clear: without creating fiscal buffers and better targeting spending, the risk of further debt growth increases. Countries should strengthen the foundations of growth and at the same time prepare public finances for potential shocks.