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Global public debt is nearing the size of the world economy, posing risks to living standards in developed nations, the International Monetary Fund (IMF) warned.
For the first time, global government debt is projected to surpass $100 trillion in 2024, rising faster than expected. The IMF attributed this to high spending encouraged by political climates and slow economic growth driving borrowing needs and costs.
In its fiscal report, the IMF stressed the urgent need for unprecedented spending cuts and tax hikes over the next five to seven years to stabilize or reduce debt. "Governments need to get their fiscal houses in order," said IMF Deputy Director of Fiscal Affairs, Era Dabla-Norris.
If current fiscal policies remain unchanged, the IMF estimates that by the end of 2024, borrowing by major economies such as the U.S. and China will reach 93% of global GDP, approaching 100% by 2030. In a worst-case scenario, global debt could hit 115% of world output by 2026, with U.S. debt potentially reaching 150% of GDP. According to IMF data, U.S. debt started the century below 60% of GDP but has more than doubled since. The pandemic and Russia's invasion of Ukraine further fueled borrowing as governments across Europe supported households and businesses with rising energy bills.
Debt is expected to keep rising in major economies, including the U.S., China, Brazil, France, Italy, South Africa, and the U.K. Without corrective action, these countries will face even steeper spending cuts and tax increases to stabilize borrowing. Last week, France unveiled a budget aiming to reduce its deficit to 5% of GDP by 2025 and to 3% by 2029 from 5.5% in 2023.
The IMF’s call for debt reduction comes as U.S. elections approach, with candidates offering conflicting fiscal policies. According to the Committee for a Responsible Federal Budget, former President Donald Trump's proposals could widen the deficit by $7.5 trillion over the next decade, while Vice President Kamala Harris’s plans would add $3.5 trillion. The IMF warned that U.S. fiscal policy and Federal Reserve interest rates could influence borrowing costs for other governments. To fund crucial priorities like transitioning from fossil fuels, boosting defense spending, and expanding elder care, global debt must shrink, the IMF concluded.
