## EXECUTIVE SUMMARY

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### Global debt levels and projections
- Global public debt is expected to exceed $100 trillion (93 percent of global GDP) in 2024 and to keep rising through the end of the decade (approaching 100 percent of GDP by 2030).
- Although debt is projected to stabilize or decline in about two-thirds of countries, debt will remain well above levels foreseen before the pandemic.
- Countries where debt is not projected to stabilize account for more than half of global debt and about two-thirds of global GDP.
- Realized debt-to-GDP ratios three years ahead are, on average, higher than projected by 6 percentage points of GDP.

### Elevated upside risks to the debt outlook
- The chapter introduces a “debt-at-risk” framework to assess how changes in economic, financial, and political conditions shift the distribution of future debt-to-GDP ratios.
- Global debt-at-risk—level of future debt in an extreme adverse scenario—is estimated to be nearly 20 percentage points of GDP higher three years ahead than in the baseline projections of the World Economic Outlook, reaching 115 percent of GDP in 2026.
- For country groupings:
  - Advanced economies: three-year-ahead debt-at-risk is estimated at 134 percent of GDP (declined somewhat from pandemic peaks).
  - Emerging market and developing economies: three-year-ahead debt-at-risk has increased to 88 percent of GDP.
- Drivers and heterogeneity:
  - High debt levels amplify effects of weaker growth, tighter financial conditions, and higher spreads.
  - Differences across groups reflect initial higher debt in advanced economies and large primary deficits in systemically important economies such as China and the United States.
  - Financial conditions play a greater role in adding to debt risks in emerging market and developing economies.
- Global factors increasingly drive fluctuations in government borrowing costs across countries, implying that uncertainty in systemically important countries could increase volatility of sovereign yields and debt risks elsewhere.

### Unidentified debt and fiscal risk materialization
- Unidentified debt (change in debt not explained by interest-growth differentials, budgetary deficits, or exchange rate movements) has historically averaged 1.0–1.5 percent of GDP per year.
- Unidentified debt can increase by up to 7 percentage points of GDP following financial system stress.
- Primary sources include materialization of contingent liabilities, fiscal risks, and arrears.

### Rebuilding fiscal buffers and safeguarding debt sustainability
- Current fiscal adjustment plans fall far short of what is needed to stabilize (or reduce) debt with high probability.
- Timing and risks:
  - Now is an opportune time to rebuild buffers as inflation moderates and central banks are expected to ease monetary policy.
  - Delaying action increases the required adjustment, notably in countries where debt is projected to increase further (Brazil, France, Italy, South Africa, the United Kingdom, and the United States).
  - High debt can trigger adverse market reactions and constrain budgetary maneuver when negative shocks occur.

### Size, composition, and pace of required fiscal adjustment
- Identifying the size:
  - Cumulative fiscal adjustment of 3.0–4.5 percent of GDP, on average, is needed to stabilize or reduce debt with high probability.
  - The magnitude is higher than currently projected and almost twice the size of past adjustments, especially in countries where debt is not projected to stabilize.
- Designing the composition:
  - Advanced economies: reprioritize expenditures, advance entitlement reforms, increase revenues through indirect taxes where taxation is low, and remove inefficient tax incentives.
  - Emerging market and developing economies: increase tax revenues by upgrading tax systems; broaden tax bases, including by reducing informality; and enhance revenue administration capacity.
  - Expenditure-side priorities: rationalize large government wage bills, strengthen social safety nets, and safeguard public investment to limit negative output impact, protect vulnerable households, and support debt reduction.
- Calibrating the pace:
  - Gradual but sustained fiscal adjustment balances containing debt vulnerabilities and maintaining private demand.
  - Fast-track consolidation would require politically unfeasible hikes in tax rates and spending cuts.
  - Economies with high risk of debt distress and those that have lost market access need front-loaded adjustment, with design mattering for outcomes.
- Building credibility:
  - Governments need deliberate fiscal plans framed within credible medium-term fiscal frameworks and modern public financial management systems to anchor adjustment paths and reduce fiscal policy uncertainty.
  - Strong independent fiscal oversight can reinforce government credibility.
- Strengthening fiscal governance:
  - Assess contingent liabilities (including those associated with state-owned enterprises) and monitor them closely to avoid unidentified debt.
  - Strengthen expenditure controls and active cash management to limit overspending.
  - Provide more transparent, granular, and timely information on debt, including composition of creditors and instruments, and exposure to risks.
- Addressing debt distress:
  - For countries facing debt distress or unsustainable debt, timely and adequate restructuring is needed, along with fiscal adjustments to restore debt sustainability.
  - Recent IMF reforms to its debt and lending frameworks, combined with efforts from creditor committees and the Global Sovereign Debt Roundtable, have helped streamline sovereign debt restructuring and shortened restructuring timelines.
  - Further strengthening these processes is crucial for facilitating efficient debt restructuring.
  - To support low-income developing countries, greater coordinated efforts are necessary to ensure the provision of concessional financing to avoid undue fiscal tightening.

*International Monetary Fund | October 2024*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2024/october/english/execsum.pdf_