IMF Warns of Escalating Global Public Debt Crisis

The International Monetary Fund (IMF) has issued a stark warning about the global public debt situation, highlighting the alarming fiscal deficits in the United States and China. According to the IMF’s latest Fiscal Monitor report, global public debt is projected to exceed $100 trillion by the end of 2024. By the end of the decade, this figure is expected to reach 100% of the world’s GDP.

The U.S. and China are significant contributors to the increasing global public debt. Excluding these two countries, the global public debt to GDP ratio would be approximately 20% lower. Vitor Gaspar, the IMF’s director of fiscal affairs, noted that public debt might be worse than it appears due to governments’ optimistic debt calculations. Governments are caught in a “fiscal policy trilemma,” needing to spend more to ensure security and growth while facing resistance to higher taxation and dealing with unsustainable debt levels.

Countries in sub-Saharan Africa are under significant pressure to spend on poverty alleviation while struggling with lower tax capabilities and unfavorable finance conditions. Unsustainable debt levels could lead to sudden market sell-offs if investors perceive a country’s fiscal health as poor. This uncertainty can increase borrowing costs even for advanced economies like the U.S. and China. The U.S. Treasury Department announced that the nation’s budget deficit has risen to $1.833 trillion, the highest level outside of the pandemic era1. Political contention over government funding bills has heightened concerns about the country’s fiscal health.

The IMF’s August report on China highlighted the significant role of local government spending in the country’s high fiscal deficit. Although local government spending decreased in 2023, the impact was offset by lower revenues from extended tax relief.

The IMF’s warning underscores the urgent need for global fiscal reforms to address the escalating public debt crisis and ensure sustainable economic growth.

Source: CNBC.com