Global Public Debt may be worse than it appears, warns IMF

Global Public Debt Set to Exceed $100 Trillion, Warns IMF

- Madhusudhanan S

On October 24, 2024, the International Monetary Fund (IMF) released its Fiscal Monitor report, revealing concerning projections about the state of global public debt. According to the report, global public debt is at an elevated and unsustainable level, with total debt expected to exceed $100 trillion approximately 93% of global GDP in 2024. The IMF forecasts that debt will continue to rise through the end of the decade, approaching 100% of GDP by 2030, which represents a 10% increase from pre-pandemic levels in 2019.

Although the IMF suggests that debt is expected to stabilize or decline in two-thirds of countries, the levels will remain well above pre-pandemic benchmarks. Economies where debt is not expected to stabilize represent more than half of the global debt and nearly two-thirds of global GDP. The IMF also warns that actual debt levels may be higher than current estimates, and significantly larger fiscal adjustments will be necessary to stabilize or reduce debt with a high probability.

The IMF urges governments to take advantage of the current easing in monetary policy and address debt concerns immediately by implementing well-crafted fiscal policies that balance growth with protections for vulnerable households.

The Fiscal Trilemma

The IMF's Fiscal Monitor highlights a phenomenon it calls the "Fiscal Trilemma," which characterizes the challenges faced by economies with high deficits and public debt. The trilemma is marked by three key elements:

1. Significant expenditure demands,

2. Political constraints on increasing taxes, and

3. The need to maintain macroeconomic stability.

The core issue of the Fiscal Trilemma arises when an economy seeks to increase its spending without raising taxes, leading to financial instability, high deficits, and ballooning debt. The IMF emphasizes that economies must tread carefully and adopt more thoughtful fiscal policies to mitigate these risks.