The International Monetary Fund (IMF) has raised concerns about the “very high” global debt, which is expected to exceed $100 trillion in 2024 (93% of global GDP).
This debt is projected to keep rising, nearing 100 per cent of GDP by 2030. While debt levels may stabilise or drop in about two-thirds of countries, they will still remain higher than expected before the COVID-19 pandemic.
In its October 2024 Fiscal Monitor report titled “Putting a Lid on Public Debt,” the IMF emphasised the importance of reducing debt and managing finances responsibly to keep economies stable.
The report highlighted that countries where debt won’t stabilise make up more than half of the global debt and two-thirds of the global GDP.
The IMF also pointed out that future debt levels could be even higher than expected due to increased government spending in recent years. There are growing financial pressures related to climate change, ageing populations, security, and development challenges. These factors make the debt outlook riskier, and bigger budget changes are needed to control debt effectively.
“Fiscal policy uncertainty has increased, and political redlines on taxation have become more entrenched. Spending pressures to address green transitions, population ageing, security concerns, and long-standing development challenges are mounting.
“Risks to the debt outlook are heavily tilted to the upside and much larger fiscal
adjustments than currently planned are required to stabilise (or reduce) debt with high probability, “ the report read in part.
According to the IMF, high current debt levels make economies more vulnerable to slower growth or tougher financial conditions in the future. For advanced economies, debt risk over the next three years is slightly lower than it was during the pandemic, at 134 per cent of GDP. However, in emerging and developing economies, debt risk has increased to 88% of GDP.
Unaccounted-for debt has historically been significant, rising after financial crises and making debt problems worse. The IMF warns that current plans to manage debt are not enough to ensure it will stabilise or decrease with confidence.
Now is a good time to start fixing these issues, as inflation is easing and central banks are expected to loosen monetary policy. Acting now will help countries like Brazil, France, Italy, South Africa, the UK, and the US avoid bigger financial problems in the future. If they delay, the required changes will become even more difficult and risky.
To stabilise or reduce debt, the IMF estimates countries need to make fiscal adjustments of 3.0–4.5 per cent of GDP. A careful approach to budget changes can help prevent long periods of slow economic growth while balancing the need to control debt without hurting private demand too much.
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