New york: The International Monetary Fund (IMF) announced on Wednesday that global public debt is anticipated to reach 100% of GDP by 2029, a threshold previously seen only in the aftermath of World War II.
According to Anadolu Agency, the IMF's April edition of the Fiscal Monitor indicated that there is no significant improvement expected in global public debt dynamics by 2025. Additionally, the ongoing conflict in the Middle East has introduced a new source of fiscal pressure, further straining the global economic environment. The report outlined the repercussions of the conflict, which include disruptions to energy supplies, tighter financial conditions, and difficult government decisions regarding price control and fiscal space preservation. The fiscal impacts, however, are not uniform across countries.
The IMF highlighted that although the peak of policy uncertainty from the previous year has diminished, fiscal and geopolitical pressures remain. The resilience of the global economy has not prevented a worsening fiscal outlook. Global gross public debt is projected to rise incrementally each year, reaching 100% of GDP by 2029, with no improvement in sight under the current fiscal trajectory.
The report emphasizes the persistent concern over the already high levels of global debt, compounded by higher interest rates and increased market sensitivity to fiscal developments. This situation has reduced the capacity for economies to absorb additional shocks.
Even in nations where debt dynamics have shown improvement, public debt levels often exceed those seen during the coronavirus pandemic. Interest payments have also surged, climbing from 2% of global GDP to nearly 3% within four years.
The IMF report points out specific national concerns, noting that the United States is operating with a public deficit between 7% and 8% of GDP, with no apparent debt consolidation strategy. The US gross public debt is forecasted to reach 142.1% of GDP by 2031. In contrast, China is increasing fiscal spending to bolster domestic demand amidst deflation, resulting in an overall deficit of around 8% of GDP. This trajectory is expected to elevate China's debt to 126.8% of GDP by 2031.
The IMF warns that the Middle East conflict could exacerbate negative financial and commodity price trends, leading to higher global interest rates, a stronger US dollar, and increased energy prices. These factors could intensify macroeconomic pressures on emerging markets and developing economies. In a scenario where the conflict prolongs, global debt at risk could rise by an additional 4 percentage points, adding further strain to public finances through increased food and fuel prices, tighter financial conditions, diminished economic activity, and heightened defense spending.