IMF projects that global public debt will reach $100 trillion by year end

The International Monetary Fund (IMF) is forecasting that global public debt will hit a jaw-dropping $100 trillion by the end of this year. That’s about 93% of global gross domestic product (GDP).

You want to know what’s driving this colossal debt train? America and China, two economies pulling everyone else down with them. The IMF’s latest Fiscal Monitor shows that these governments are spending like there’s no tomorrow.

Countries are still playing with fire

The IMF expects the situation to worsen, projecting that global public debt could reach nearly 100% of GDP by 2030.

According to the report, Brazil, France, Italy, South Africa, and the UK are also on track to see their debt surge. 

“Waiting is risky,” the IMF put it, reminding everyone that countries with high debt levels often get slapped with market backlashes and find it hard to budget when hit by financial shocks.

The IMF has a tool they call the “debt-at-risk” framework, which paints a grim picture of what happens in a worst-case scenario. They’ve found that in an extreme economic disaster, debt could shoot up to 115% of GDP in three years.

That’s 20 percentage points higher than what they’re predicting under normal circumstances. Why? Because the debt levels we’re seeing today only amplify future problems like weaker economic growth or tighter financial conditions.

Advanced economies, which had debt levels skyrocket during the pandemic, are now seeing debt stabilize at 134% of GDP. But don’t be too relieved.

Emerging markets and developing economies aren’t so lucky. Their debt levels are rising to 88% of GDP. And the IMF isn’t exactly optimistic about countries getting their fiscal acts together.

Slowing inflation and falling interest rates might provide some breathing room, but governments don’t seem in a hurry to fix their fiscal mess. The IMF’s warning? Current plans to stabilize debt “fall far short.”

America has the global economy in a chokehold

For the US, higher interest rates are making life hell for a lot of other countries. The rising US dollar is increasing the price of dollar-denominated commodities, making it harder for everyone to pay back their loans. That’s why the BRICS want to dethrone USD. It’s too much power.

“High and uncertain interest rates in the U.S. affect the cost of funding elsewhere in the world,” said Vitor Gaspar, the IMF’s director of fiscal affairs.

The agency added that a bigger-than-expected slowdown in China could create serious global risks. It then pointed to the £20 billion ($25 billion) in cuts to payroll taxes made by UK Chancellor Jeremy Hunt in his last two fiscal statements.

They called these moves “part-funded by well-conceived revenue-raising measures,” but warned they could make the U.K.’s debt problems worse in the medium term.

The global primary deficit is expected to shrink to 4.9% of GDP this year from 5.5% in 2023. But plenty of risks still loom large over public finances in many countries.

As Bank of England Governor Andrew Bailey pointed out during an event in Washington, public sector funding is playing a big role in addressing global challenges like the pandemic, rising security threats, and climate change.

“We do have to look at it. It is important. It is a big-subject conversation,” he said.

There’s another thing the IMF wants everyone to watch out for: elections. This year, voters in 88 countries, which represent over half of the world’s population and GDP, will head to the polls.

The IMF is worried about how these elections will impact fiscal policies. “Support for increased government spending has grown across the political spectrum over the past several decades,” the report said.

And when elections roll around, governments tend to loosen their fiscal belts. Historically, fiscal policies become more relaxed, and governments spend more during election years.