WASHINGTON — The International Monetary Fund projected global public debt to exceed $100 trillion by the end of 2024 in its bi-annual Fiscal Monitor report, released Wednesday at the Annual Meetings of the World Bank and the IMF.
“Public debt may be worse than it looks.” IMF Director of Fiscal Affairs Vítor Gaspar said at a press briefing Wednesday, noting the propensity for optimism in debt calculations.
The report also predicted that the global debt-to-GDP ratio will approach 100% by the end of the decade, rising above pandemic peak. Public debt is projected to grow faster than the pandemic in about one-third of countries covered by the World Economic Outlook.
High debt levels today raise the risk of financial instability, making economies more vulnerable to negative spillover, especially if borrowing costs rise or revenues fall unexpectedly. They also add higher spreads on future debt levels.
The Fiscal Monitor is prepared by the IMF Fiscal Affairs department and draws from the same database as the World Economic Outlook, which anticipated steady global economic growth, soft landing, and a dip in inflation in its latest report.
Given these circumstances, “most economies are well positioned to deal with fiscal adjustment,” Gaspar said. “The time to act is now.”
The United States and China, the world’s two largest economies, account for a significant share of rising public debt. Taking the U.S. and China out of the equation would drop the global debt-to-GDP ratio by around 20 percentage points, estimated the IMF.
As of Tuesday, U.S. public debt is $35.77 trillion, with $3 billion being added daily, according to Fox Business.
Former IMF Research Department Deputy Director and current Brookings Senior Fellow Gian Maria Milesi-Ferretti said that though U.S. “dynamics are clearly unsustainable,” the U.S. is in a very different position compared some other countries.
“Say, people running from U.S. treasury bonds, or rates spiking up because investors are getting jittery,” he said. “Unless you have a real change in perspective for the U.S. economy, you are unlikely to see that.”
Conversations around fiscal policy are especially relevant as the 2024 U.S. presidential election approaches. Vice President Kamala Harris would increase national debt by $3.50 trillion through 2035, while former President Donald Trump would increase the debt by $7.50 trillion, according to a US Budget Watch analysis of the candidates’ tax and spending plans.
April’s Fiscal Monitor report detailed a look into the ‘Great Election Year,’ with policy-related risks at the forefront of uncertainty.
Gaspar declined to comment on any specific elections at Wednesday’s briefing, but said that the IMF believes the situation in the U.S. is more stable, given that “policymakers have access to many combinations of policy instruments that enable them to put the path of public debt under control.”
“Adjustment in the United States, not only good for the United States, is also good for the rest of the world,” he said.
IMF Deputy Director of Fiscal Affairs Era Dabla-Norris said at the briefing that policymakers are facing a “fiscal policy trilemma”: maintaining sustainability amid very high levels of debt, accommodating spending pressures for private adaptation, and garnering support for reforms.
Poor countries in sub-saharan Africa are most vulnerable, as governments are caught between spending to alleviate poverty and being unable to do so with lower tax and debt-carrying capacity.
Dabla-Norris said that the latest Fiscal Monitor calls for countries to “put their public finances in order” so as to limit public debt risks.
Dabla-Norris also noted that the fiscal efforts need to be “people-focused.” She emphasized that governments needed to “build the trust’ of the taxpayers to ensure that “every dollar that is spent has maximum impact,” because its important to “preserve social spending.”
Doing so would create fiscal space “to combat future shocks surely to come” and will “sustain long-term growth,” she said.
