Global Public Debt to Cross $100 Trillion in 2024

Global public debt is very high and expected to exceed $100 trillion (93% of global GDP) in 2024 and to keep rising through the end of the decade (approaching 100% of GDP by 2030), the International Monetary Fund (IMF) said on Tuesday.

Although debt is projected to stabilise or decline in about two-thirds of countries, it will remain well above levels foreseen before the pandemic. Countries where debt is not projected to stabilise account for more than half of global debt and about two-thirds of global GDP.

There are good reasons to believe that future debt levels could be higher than currently projected as the political discourse on fiscal issues has increasingly tilted toward higher government spending in recent decades, the IMF said in its Fiscal Monitor report.

“Fiscal policy uncertainty has increased, and political redlines on taxation have become more entrenched. Spending pressures to address green transitions, population aging, security concerns, and long-standing development challenges are mounting,” the report said.

Further, past experience shows that projections tend to systematically underestimate debt levels: realised debt-to-GDP ratios three years ahead are, on average, higher than projected by 6 percentage points of GDP.

Rebuilding fiscal buffers in a growth-friendly manner and containing debt is essential to ensure sustainable public finances and financial stability.

Elevated Upside Risks

The chapter presents a novel approach—the “debt-at-risk” framework—for assessing risks surrounding the baseline debt projections and how they vary across countries and over time. The framework shows how changes in economic, financial, and political conditions can shift the distribution of future debt-to-GDP ratios.

Global debt-at-risk—the level of future debt in an extreme adverse scenario— is estimated to be nearly 20 percentage points of GDP higher three years ahead than in the baseline projections of the World Economic Outlook, reaching 115% of GDP in 2026.

This is because high debt levels today amplify the effects of weaker growth or tighter financial conditions and higher spreads on future debt levels.

Debt-at-Risk Varies

For advanced economies as a group, three-year-ahead debt-at-risk has declined somewhat from pandemic peaks and is estimated at 134% of GDP, whereas debt-at-risk has increased to 88% of GDP for emerging market and developing economies.

Differences within and across country groups reflect an initial higher level of debt in advanced economies and large primary deficits in systemically important economies such as China and the US, the report said.

Financial conditions, however, play a greater role in adding to debt risks in emerging market and developing economies. The chapter shows that global factors increasingly drive the fluctuations in government borrowing costs across countries.

This suggests that high debt levels and uncertainty surrounding fiscal and monetary policy in systematically important countries could increase the volatility of sovereign yields and debt risks for other countries.

Unidentified debt—the change in debt not explained by interest-growth differentials, budgetary deficits, or exchange rate movements—is another reason why debt outturns could be higher than projected.

The chapter finds that unidentified debt has historically been large, averaging 1%–1.5% of GDP per year and increasing by up to 7 percentage points of GDP following financial system stress. This stems primarily from the materialisation of contingent liabilities and fiscal risks as well as arrears.

Rebuilding Fiscal Buffers

Current fiscal adjustment plans fall far short of what is needed to ensure that debt is stabilized (or reduced) with high probability. Now is an opportune time to rebuild buffers. With inflation moderating and central banks expected to ease monetary policy, economies are better placed to absorb the economic effect of fiscal tightening.

Moreover, delaying is costly in countries where debt is projected to increase further—such as Brazil, France, Italy, South Africa, the UK, and the US—delaying action will make the required adjustment even larger.

Country experiences show that high debt can trigger adverse market reactions and on strains room for budgetary manuevour in the face of negative shocks, the report said.

Rationalising Government Bills

On the expenditure side, efforts to rationalise large government wage bills, strengthen social safety nets, and safeguard public investment are key to limiting the negative impact on output, protecting vulnerable households, and supporting debt reduction.

Gradual but sustained fiscal adjustment would strike a balance between containing debt vulnerabilities and maintaining the strength of private demand. Fast-track consolidation would also require politically unfeasible hikes in tax rates as well as spending cuts.