Will global public debt exceed $100 trillion this year? IMF warns of rising economic pressures

The International Monetary Fund (IMF) announced on Tuesday that global public debt is expected to surpass the $100 trillion mark this year for the first time.

This increase may be more rapid than previously anticipated, driven by a political climate favoring increased spending and the pressures of slow economic growth that heighten borrowing needs and costs.

According to the IMF’s latest Fiscal Monitor report, global public debt is projected to reach 93% of the world's gross domestic product (GDP) by the end of 2024, with estimates suggesting it could approach 100% by 2030.

This figure would exceed the 99% peak observed during the Covid-19 pandemic and marks a 10 percentage point increase since 2019, prior to the surge in government spending caused by the health crisis.

As the IMF prepares for its annual meetings with the World Bank in Washington next week, the Fiscal Monitor report highlights significant factors that could drive debt levels even higher than current forecasts.

Notably, there is a growing appetite for spending in the United States, the world’s largest economy.

The report states:

Impending US election and spending promises

Concerns regarding rising debt levels coincide with the upcoming US presidential election, where candidates from both major parties have proposed new tax cuts and spending initiatives that could substantially increase federal deficits.

Republican candidate Donald Trump's proposed tax cuts are estimated to add approximately $7.5 trillion in new debt over the next decade, significantly more than the $3.5 trillion anticipated from the plans of Democratic nominee Vice President Kamala Harris, according to estimates from the Committee for a Responsible Federal Budget (CRFB), a budget-focused think tank.

The IMF report also notes a trend where debt projections frequently underestimate actual outcomes, with realized debt-to-GDP ratios five years out averaging 10% higher than initial forecasts.

Additionally, weak economic growth, tighter financial conditions, and heightened fiscal and monetary policy uncertainty in critical economies like the US and China could further exacerbate debt levels.

A "severely adverse scenario" included in the report suggests global public debt could reach 115% within just three years, significantly above current estimates.

The IMF reiterated its call for enhanced fiscal consolidation, indicating that the current favorable economic environment, characterized by solid growth and low unemployment, presents an opportune moment to implement such measures.

However, it warned that current efforts—averaging 1% of GDP from 2023 to 2029—are insufficient to stabilize or reduce debt levels effectively.

To achieve this stabilization, a cumulative tightening of 3.8% would be necessary, particularly in the U.S., China, and other nations where debt levels are expected to keep rising.

The Congressional Budget Office anticipates that the U.S. will report a fiscal deficit of about $1.8 trillion for 2024, representing over 6.5% of GDP.

Countries such as the U.S., Brazil, the United Kingdom, France, Italy, and South Africa, which are projected to experience ongoing debt growth, may face severe repercussions if corrective actions are delayed.

"Postponing adjustment will only mean that a larger correction is needed eventually," stated Era Dabla-Norris, the IMF’s deputy director for fiscal affairs.

Dabla-Norris emphasized that cuts to public investment or social spending tend to have a more detrimental impact on growth than poorly targeted subsidies, such as those for fuel.

Some nations have the capacity to broaden their tax bases and enhance tax collection efficiency, while others can make their tax systems more progressive by improving taxation on capital gains and income.