## CHAPTER 1 FISCAL POLICy UNDER UNCERTAINTy

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### Uncertainty indexes, market indicators, and recent timing
- Panel cutoff dates and sources:
  - Panels 1 and 2 cutoff: April 10, 2025.
  - Panels 3 and 4 cutoff: April 14, 2025.
  - Sources: Bloomberg Finance L.P.; Fiscal Policy Uncertainty Index: Hong, Nguyen, and Ke 2024; Geopolitical Risk Index: Caldara and Iacoviello 2022; Trade Policy Uncertainty Index: Caldara and others 2020; World Uncertainty Index: Ahir, Bloom, and Furceri 2022.
- Index interpretation:
  - Higher number = higher uncertainty.
  - Panel 1 index relative to 2008 (index = 100 in 2008); e.g., value 200 = twice 2008 uncertainty.
  - Panel 2 standardized with mean = 100 and standard deviation = 1 (one unit = one-standard-deviation increase).
  - Vertical bars in panel 2 correspond to the 10th and 90th percentiles.
- Selected index values (displayed series): 99.0, 99.3, 99.6, 99.9, 100.2, 100.5, 100.8, 101.1.
- US Treasury yields and fiscal uncertainty:
  - 10-year US Treasury nominal yields peaked near 4.75 percent at the start of 2025.
  - Nominal yields fell to 4.2 percent at the end of March 2025, then climbed to 4.5 percent by April 11, 2025.
  - From April 1 to April 11, 2025, the 10-year US nominal interest rate increased 31 basis points.
- Decomposition: term premiums and risk-neutral yields shown in chapter figures (no numeric decomposition values in text).

### Global fiscal aggregates and debt projections
- World overall balance (percent of GDP): 2019 = −3.5; 2020 = −9.5; 2021 = −6.3; 2022 = −3.7; 2023 = −4.9; 2024 = −5.0; 2025 (proj) = −5.1; 2026 = −4.7; 2027 = −4.5; 2028 = −4.5; 2029 = −4.5; 2030 = −4.6.
- Advanced Economies overall balance (percent of GDP): 2019 = −3.0; 2020 = −10.3; 2021 = −7.2; 2022 = −2.9; 2023 = −4.6; 2024 = −4.7; 2025 = −4.3; 2026 = −3.9; 2027 = −3.8; 2028 = −3.9; 2029 = −3.9; 2030 = −4.0.
- Emerging Market and Developing Economies overall balance (percent of GDP): 2019 = −4.4; 2020 = −8.4; 2021 = −5.0; 2022 = −4.8; 2023 = −5.2; 2024 = −5.5; 2025 = −6.1; 2026 = −5.9; 2027 = −5.5; 2028 = −5.4; 2029 = −5.3; 2030 = −5.3.
- Global fiscal deterioration in 2024:
  - Global fiscal deficit increased by 0.1 percentage point in 2024 to an average of 5.0 percent of GDP.
  - Public debt rose by 1 percentage point to 92.3 percent of GDP.
- Projection note (April 2025 WEO reference point as of April 4, 2025): global public debt projected to rise by an additional 2.8 percentage points of GDP in 2025, approaching 100 percent of GDP in 2030 and surpassing the pandemic peak.

### General government gross and net debt (percent of GDP)
- World gross debt: 2019 = 83.8; 2020 = 98.9; 2021 = 94.0; 2022 = 89.9; 2023 = 91.3; 2024 = 92.3; 2025 = 95.2; 2026 = 96.7; 2027 = 97.5; 2028 = 98.2; 2029 = 98.9; 2030 = 99.6.
- Advanced Economies gross debt: 2019 = 103.6; 2020 = 122.0; 2021 = 115.5; 2022 = 109.3; 2023 = 108.2; 2024 = 108.5; 2025 = 110.1; 2026 = 110.9; 2027 = 111.5; 2028 = 112.0; 2029 = 112.6; 2030 = 113.3.
- Japan gross debt: 2019 = 236.4; 2020 = 258.4; 2021 = 253.7; 2022 = 248.3; 2023 = 240.0; 2024 = 236.7; 2025 = 234.9; 2026 = 233.7; 2027 = 232.1; 2028 = 231.2; 2029 = 231.1; 2030 = 231.7.
- United States gross debt: 2019 = 108.2; 2020 = 132.0; 2021 = 124.7; 2022 = 118.8; 2023 = 119.0; 2024 = 120.8; 2025 = 122.5; 2026 = 123.7; 2027 = 124.9; 2028 = 125.9; 2029 = 127.0; 2030 = 128.2.
- China gross debt: 2019 = 59.4; 2020 = 69.0; 2021 = 70.1; 2022 = 75.5; 2023 = 82.0; 2024 = 88.3; 2025 = 96.3; 2026 = 102.3; 2027 = 105.9; 2028 = 109.2; 2029 = 112.6; 2030 = 116.0.
- World net debt series (selected): 67.0, 78.2, 75.7, 72.0, 72.0, 73.1, 75.0, 76.1, 76.8, 77.4, 78.0, 78.7.
- Advanced Economies net debt: 73.3, 84.8, 82.0, 78.6, 78.6, 79.6, 81.2, 82.2, 82.9, 83.7, 84.6, 85.6.
- United States net debt: 81.1, 95.6, 95.5, 91.6, 94.0, 96.5, 98.0, 99.2, 100.4, 101.4, 102.7, 104.0.

### Drivers of fiscal outcomes, vulnerabilities, and trade policy transmission
- Pandemic legacies and interest:
  - Higher subsidies, social benefits, other current spending, and rising net interest expenses are legacies from the COVID-19 pandemic.
  - Figures in the chapter show contributions to higher-than-expected fiscal deficits and rising general government interest expenses as percent of GDP (chart timeframe 2000–2025 with projections through 2030).
- Coverage and vulnerability:
  - 53 percent of low-income developing countries and 23 percent of emerging markets were at high risk of debt distress or in debt distress.
  - Gross financing needs expected to remain elevated across many countries.
  - Risks increased due to tighter and more volatile financial conditions and heightened economic uncertainty.
- Tariffs and macro-fiscal transmission:
  - Importing-country tariffs create a negative supply shock: higher prices and reduced output and productivity in the medium term.
  - Exporting-country tariffs create a negative demand shock: short-term decline in demand and downward price pressures.
  - Retaliatory tariffs have opposite effects; recent tariff announcements increased uncertainty, tightened financial conditions, and raised borrowing costs.
  - Tariffs directly affect import revenues: higher tariffs may increase short-term revenue but likely wane as higher prices reduce imports and output.
  - Example: a tariff rate of 100 percent could substantially reduce imports of goods with price elasticity −1, resulting in negligible revenue; imports of inelastic goods may produce higher revenue.
  - The April 2 tariffs pause and April 9 ratcheting announcements between China and the United States could produce very different tariff schedules and lower import revenues (top-down model scenario referenced).

### United States and China — highlights and projections
- United States:
  - 2024 general government fiscal deficit: 7.3 percent of GDP.
  - Projected overall fiscal deficit for 2025: 6.5 percent of GDP (contingent on higher tariff revenues).
  - Primary fiscal deficit declined from 3.9 to 3.6 percent of GDP relative to 2019.
  - Interest expense increased by 1.4 percentage points of GDP compared to 2019.
  - Revenue increased by 0.4 percentage point of GDP in 2024 (partly owing to postponed tax deadlines for some disaster-affected taxpayers).
  - Primary spending as a share of GDP remained broadly unchanged in 2024.
  - Without significant policy changes, the deficit projected to drop to 5.6 percent of GDP in the medium term, with a 0.7 percentage point rise in revenues; net interest expenses projected to remain about 3.8 percent of GDP.
  - Debt-to-GDP could rise about 1 percentage point annually, reaching 127.6 percent by 2030.
  - New analysis finds a 10 percentage points of GDP increase in US public debt between 2024 and 2029 could lead to a 60-basis-point rise in the 5-year forward to 10-year rate; similar results hold for the 10-year Treasury nominal yield.
- China:
  - China’s fiscal deficit increased by 0.6 percentage point of GDP in 2024 to 7.3 percent of GDP.
  - General government revenues fell by 0.4 percent of GDP in 2024, driven by a 3.4 percent decline in tax revenues.
  - Land sales dropped by 22.4 percent year over year.
  - Nontax revenues increased by 25.4 percent.
  - Budget execution slow until September 2024; local government financing limitations; net bond issuance by local government financial vehicles turned negative since Q4 2023.
  - Policy action: swap 10 trillion yuan of off-budget debt with official debt from 2024 to 2028 (raises official debt-to-GDP while alleviating local financing pressures).
  - Fiscal stance expansionary in 2025 with deficit projected to increase to 8.6 percent of GDP.
  - Projected public debt expected to reach 116 percent of GDP by 2030.
  - Outlook faces unusually high uncertainty from escalating geoeconomic tensions and trade policy uncertainty.

### Advanced economies, emerging markets, and low-income developing countries — cross-country dynamics
- Advanced economies (excluding United States):
  - Average primary deficit unchanged at 1.6 percent of GDP in 2024.
  - Overall deficit increased by 0.1 percent of GDP from 2023.
  - Lower short-term rates and longer maturities helped mitigate interest expenses.
  - Term spreads (10- minus 2-year) rising since mid-2024.
  - Planned fiscal consolidation expected to stabilize debt at about prepandemic levels; weighted average public debt projected to surpass 100 percent of GDP by 2030.
  - Cross-country divergence next five years: public debt projected to rise >10 percentage points of GDP in Belgium, France, Slovak Republic; decline >15 percentage points of GDP in Cyprus, Greece, Portugal.
  - Military spending in the EU rose on average by 0.2 percentage point of GDP between 2020 and 2023; some cases exceeded 1 percent of GDP (notably Poland).
  - Example: fossil fuel subsidies in Finland = 0.5 percent of GDP in 2024.
- Emerging markets (excluding China):
  - Average primary deficit stable in 2024 at 1.3 percent of GDP.
  - Overall deficit rose to 4.3 percent of GDP in 2024.
  - Revenue increases in some oil exporters partially offset rising expenditures.
  - Argentina achieved first primary surplus since 2008 by cutting expenditures >5 percentage points of GDP.
  - External debt issuance fell 20 percent y/y in Q1 2025; total issuance increased 6 percent in same period.
  - Projections: primary deficit to decline by 0.1 percentage point to 1.2 percent of GDP in 2025; primary deficit to 0.2 percent of GDP by 2030 on average; public debt under current policies projected to rise to 60 percent of GDP by 2030.
  - Notable projected debt increases: Romania >18 percentage points of GDP; Gabon 25 percentage points of GDP.
- Low-income developing countries:
  - Average primary deficits improved from 1.8 to 1.2 percent of GDP in 2024.
  - Revenue-to-GDP ratios increased due to higher growth, partially offset by rising primary expenditures.
  - Effective interest rates produced highest net interest outlays in two decades, averaging 23 percent of tax revenues.
  - Average public-debt-to-GDP decreased from 53.7 percent in 2023 to 52.7 percent in 2024 (still ~10 percentage points above prepandemic).
  - Decline in foreign aid projected to continue; example: annual grants as percent of GDP in the Republic of Tanzania fell to less than one-sixth of the two-decade average.
  - By 2025, about two-thirds of LICs expected to consolidate debt; reductions >15 percentage points in Zambia and Zimbabwe.
  - Adjustment in many LICs expected to be driven more by increased revenues (example: Ethiopia).
  - High net interest expenses estimated to remain above 2 percent of GDP (20 percent of tax revenues) for all years until 2030.

### Debt-at-risk framework, 2027 distribution, and drivers
- Global debt-at-risk three years ahead estimated at about 117 percent.
- Debt-at-risk distribution percentiles:
  - Median = 97.5
  - 95th percentile = 116.6
- Global Public Debt-at-Risk 2027:
  - Median of the global debt distribution for 2027 fitted to April 2025 WEO projection.
  - Upside risks (95th percentile − median) estimated at 20 percentage points of GDP.
  - Downside risks (median − 5th percentile) estimated at 15 percentage points of GDP.
  - 95th percentile (debt-at-risk) is about 3 percentage points larger than the 50th percentile under heightened geoeconomic uncertainty.
- Change in global debt-at-risk between 2026 and 2027:
  - About 2 percentage points of GDP higher than projected in October 2024 Fiscal Monitor.
  - Primary drivers: higher projected 2027 debt levels and persistently elevated primary deficits in 2024.
  - Major policy shifts since early 2025 (US tariffs April 2, 2025; partial pause April 9, 2025) escalated uncertainty and tightened financial conditions; WEO post-April 9 model projects ratcheting trade wars would lower growth in US and China and produce significant spillovers.

### Geoeconomic uncertainty, financial volatility, and fiscal effects (quantified)
- Geoeconomic uncertainty effects from a one-standard-deviation rise in the Geopolitical Fragmentation Index:
  - Public debt increase ≈ 4.5 percent of GDP in the medium term.
  - Persistent increase in public spending = 0.9 percentage point of GDP in the medium term.
  - Initial decline in revenues = 0.1 percentage point of GDP.
  - Persistent reduction of 2.3 percent in GDP in the medium term.
  - Temporary 0.2 percentage point increase in long-term interest rates.
- Distributional effects:
  - 95th percentile rises by about 3 percentage points relative to the 50th percentile.
  - Effects more pronounced in EMDEs: public debt rise ≈ 6 percentage points of GDP in EMDEs vs. 4 percentage points in AEs.
  - In AEs, debt rise mainly from persistent spending increase ≈ 1 percentage point of GDP; in EMDEs, from significant near-term revenue declines.
- US-originated financial volatility:
  - Common factors driven by US financial volatility explain >50 percent of fluctuations in foreign-currency-denominated sovereign bond yields for EMDEs and >30 percent for local-currency yields on average.
  - A substantial (two standard deviations) increase in US financial volatility associated with:
    - Emerging market bond yield volatility rise ≈ 30 percent after four months.
    - Commodity prices decline ≈ 8 percent and commodity price volatility increase ≈ 20 percent.
  - Sensitivity example: a 100-basis-point increase in the 10-year US nominal rate could trigger long-term nominal rate increases peaking at 90 basis points in AEs and 100 basis points in EMs, with effects lasting several months.

### Higher interest rates, fiscal crowding-out, and fiscal adjustment needs
- Effective yields expected to stabilize at elevated levels; market volatility and larger deficits raise risk of further interest rises.
- Fiscal pressures that can increase deficits: defense spending, tariff mitigation measures, constrained foreign aid.
- Empirical fiscal crowding-out:
  - A 1 percentage point of GDP increase in primary deficits in EMDEs could lead to a persistent rise in 10-year yields (analysis referenced).
  - A 1 percentage point of potential GDP increase in interest expenditures typically results in a permanent reduction of about 0.6 percentage point of potential GDP in non-interest expenditures in the medium term:
    - Social benefits decline average = 0.5 percent of potential GDP.
    - Public investment fall average = 0.1 percentage point of potential GDP.
    - For the average economy, this implies potential reduction in public investment of about 4 percent from its initial level of 2.5 percent of GDP following a 1 percentage point potential GDP increase in interest expenses.
- Debt-stabilizing primary deficits:
  - Declined by 0.6 percentage point of GDP on average from 2023 to 2024 (from 2.9 to 2.3 percentage points of GDP).
- Share of economies with primary deficits above debt-stabilizing levels (2023 → 2024):
  - Advanced economies: 22 percent → 57 percent.
  - Emerging market economies: 33 percent → 51 percent.
  - Low-income developing countries: 39 percent → 36 percent.
- By 2030, >25 percent of countries representing > two-thirds of global economy projected to have primary deficits above debt-stabilizing levels.
- Required average adjustments to stabilize debt by 2030:
  - Advanced economies excluding the United States: 1.8 percentage points of GDP.
  - Emerging markets excluding China: 1 percentage point of GDP.
  - Low-income developing countries: 0.4 percentage point of GDP.
- Under optimistic scenarios (primary deficits 20 percent above past performance), 12 percent of economies (15 countries in sample) would still have primary deficits above DSPD.
- Fiscal adjustment effectiveness:
  - A 1 percent of GDP fiscal adjustment estimated to reduce the three-year-ahead debt-at-risk by about 0.3 percentage point of GDP in short term and 1.2 percentage points in medium term.
  - Fiscal rules enhance credibility and amplify interest-rate reductions, producing larger declines in debt-at-risk.

### Policy conclusions, priorities, and country guidance
- Overall assessment:
  - Fiscal outlook deteriorated since October 2024 Fiscal Monitor due to tariffs, heightened uncertainty, financial volatility, and diminishing foreign aid.
  - Global public debt now projected to reach nearly 100 percent of GDP by end of decade, surpassing pandemic peak; gross financing needs set to rise significantly.
  - Sudden disruptive tightening of financing conditions remains a clear and present danger.
  - Fiscal policy faces trade-offs among reducing debt, building buffers, meeting urgent spending needs, and enhancing growth.
- General strategy:
  - Gradual fiscal adjustment within credible medium-term frameworks needed in most countries to reduce debt while building buffers.
  - Adjustments must balance pace and timing with growth and country circumstances.
  - Countries with limited fiscal space should prioritize planned public spending and allow automatic stabilizers to operate.
  - Countries with fiscal room facing spending pressures could utilize resources within well-defined medium-term frameworks.
- Country-specific guidance:
  - United States: significant medium-term fiscal adjustment required to put public debt on a decisively downward path; policy options rely on social consensus.
  - China: expansionary 2025 stance welcome but should prioritize boosting consumption and supporting the property sector.
  - Low-income developing countries: should stay the course with fiscal adjustment plans.
- Advanced economies and longer-term reforms:
  - Prioritize pension and health care reforms, remove inefficient tax incentives, broaden tax bases, pursue active labor policies including for migrants.
  - Examples: eliminating exemptions and improving tax expenditure efficiency (Spain, United Kingdom, United States); progressively increasing income taxes (United States); eliminating flat taxes on self-employment (Italy).
- Strengthening fiscal frameworks and governance:
  - Anchor adjustment paths with medium-term frameworks and modern public financial management.
  - Permanent increases in investment and defense outlays must be coupled with spending efficiency, strengthened procurement, and multiyear planning.
  - Enhance compliance with fiscal rules, forecasting, integrate medium-term plans into annual budgets, and set contingency plans (examples: Brazil, India, Indonesia, South Africa).
  - Resource independent fiscal institutions to assess and communicate fiscal plans.
  - Develop medium-term debt management strategies alongside fiscal frameworks.
- Fiscal and debt transparency:
  - Improve identification and management of contingent liabilities, especially related to state-owned enterprises.
  - Provide clear, detailed, and timely information on debt, creditor composition, and exposures to interest-rate and exchange-rate risks.
  - Strengthen expenditure controls and active cash management to prevent overspending.
- Emerging market and developing economy priorities:
  - Reduce spending and increase revenues via tax reforms, broaden tax bases, improve revenue administration.
  - Phase out energy subsidies and rationalize public wage bills while safeguarding public investment and social safety nets.
  - Reform state-owned enterprises to enhance resource allocation and mitigate fiscal risks.
  - Examples of country measures: reassess tax rates and thresholds (Mexico); consider increasing VAT (Thailand); reintroduce GST (Malaysia); rationalize tax expenditures (Brazil, Egypt, Kyrgyz Republic); energy subsidy reforms (Morocco 2013–2015; Togo).
  - Gabon: rein in public wage bill; India and Indonesia: invest in infrastructure and social programs to protect vulnerable populations.
- Crisis preparedness, targeted support, and debt restructuring:
  - Prepare for severe economic and financial disruptions; fiscal policy can support central banks and supervisors via lending, guarantees, and equity injections.
  - Provide timely, targeted, temporary support to communities and sectors affected by trade dislocations; ensure measures are costed, transparent, and monitored.
  - For permanent trade disruptions, emphasize active labor market policies and skills retraining within fiscal constraints.
  - Timely, orderly debt restructuring plus fiscal adjustments essential for countries in distress; recent initiatives have streamlined sovereign restructuring.
  - International cooperation and coordinated concessional financing for LICs are vital to avoid undue fiscal tightening and human suffering.
- Growth-enhancing fiscal and structural reforms:
  - Advance fiscal and structural reforms to reignite medium-term growth and mitigate growth-debt trade-offs.
  - Well-designed fiscal reforms and targeted tax incentives can stimulate employment, investment, and productivity (including R&D).
  - Improve spending efficiency in health, education, and infrastructure to raise production capacity.

*Source: IMF staff estimates, projections, and figures as presented in Chapter 1 PDF (data cutoff dates April 10, 2025 and April 14, 2025).*

### 1. Geopolitical Risk, Trade Policy, and World Uncertainty Indexes

### 1. Geopolitical Risk, Trade Policy, and World Uncertainty Indexes

### Uncertainty Indexes and Financial Market Indicators
- Panel timing and sources:
  - Data for panels 1 and 2 have April 10, 2025, as cutoff date.
  - Data for panels 3 and 4 have April 14, 2025, as cutoff date.
  - Sources: Bloomberg Finance L.P.; Fiscal Policy Uncertainty Index: Hong, Nguyen, and Ke 2024; Geopolitical Risk Index: Caldara and Iacoviello 2022; Trade Policy Uncertainty Index: Caldara and others 2020; and World Uncertainty Index: Ahir, Bloom, and Furceri 2022.
- Index interpretation:
  - A higher number means higher uncertainty and vice versa.
  - Panel 1 presents the index relative to 2008 (where index = 100 in 2008), meaning a value of 200 represents uncertainty that is twice as high as in 2008.
  - Panel 2 standardizes the index with a mean of 100 and a standard deviation of one, meaning that an increase of one unit corresponds to a one-standard-deviation increase.
  - Vertical bars in panel 2 correspond to the 10th and 90th percentiles.
- Selected index values (from the displayed index number series):
  - Index number sequence: 99.0, 99.3, 99.6, 99.9, 100.2, 100.5, 100.8, 101.1.
- US Treasury yields and fiscal uncertainty:
  - 10-year US Treasury nominal yields peaked near 4.75 percent at the start of 2025.
  - Nominal yields fell to 4.2 percent at the end of March 2025, then climbed back to 4.5 percent by April 11, 2025.
  - From April 1 to April 11, 2025, the 10-year US nominal interest rate increased 31 basis points.
- Decomposition of 10-year yields:
  - Term premiums and risk-neutral yields are shown in decomposition (no numeric decomposition values provided in source text aside from chart axis context).

### Recent Fiscal Developments and Outlook (Global)
- Global fiscal aggregates (Table 1.1, overall balance, percent of GDP):
  - World overall balance: 2019 = −3.5; 2020 = −9.5; 2021 = −6.3; 2022 = −3.7; 2023 = −4.9; 2024 = −5.0; 2025 (proj) = −5.1; 2026 = −4.7; 2027 = −4.5; 2028 = −4.5; 2029 = −4.5; 2030 = −4.6.
  - Advanced Economies overall balance: 2019 = −3.0; 2020 = −10.3; 2021 = −7.2; 2022 = −2.9; 2023 = −4.6; 2024 = −4.7; 2025 = −4.3; 2026 = −3.9; 2027 = −3.8; 2028 = −3.9; 2029 = −3.9; 2030 = −4.0.
  - Emerging Market and Developing Economies overall balance: 2019 = −4.4; 2020 = −8.4; 2021 = −5.0; 2022 = −4.8; 2023 = −5.2; 2024 = −5.5; 2025 = −6.1; 2026 = −5.9; 2027 = −5.5; 2028 = −5.4; 2029 = −5.3; 2030 = −5.3.
- Global fiscal deterioration in 2024:
  - Global fiscal deficit increased by 0.1 percentage point in 2024, reaching an average of 5.0 percent of GDP.
  - Public debt rose by 1 percentage point to 92.3 percent of GDP (Table 1.2 referenced).
- Projection note:
  - Based on April 2025 World Economic Outlook “reference point” (information as of April 4, 2025), global public debt is projected to rise by an additional 2.8 percentage points of GDP in 2025, approaching 100 percent of GDP in 2030 and surpassing the pandemic peak.

### General Government Debt Levels (Table 1.2)
- Gross debt (selected aggregates, percent of GDP):
  - World gross debt: 2019 = 83.8; 2020 = 98.9; 2021 = 94.0; 2022 = 89.9; 2023 = 91.3; 2024 = 92.3; 2025 = 95.2; 2026 = 96.7; 2027 = 97.5; 2028 = 98.2; 2029 = 98.9; 2030 = 99.6.
  - Advanced Economies gross debt: 2019 = 103.6; 2020 = 122.0; 2021 = 115.5; 2022 = 109.3; 2023 = 108.2; 2024 = 108.5; 2025 = 110.1; 2026 = 110.9; 2027 = 111.5; 2028 = 112.0; 2029 = 112.6; 2030 = 113.3.
  - Japan gross debt: 2019 = 236.4; 2020 = 258.4; 2021 = 253.7; 2022 = 248.3; 2023 = 240.0; 2024 = 236.7; 2025 = 234.9; 2026 = 233.7; 2027 = 232.1; 2028 = 231.2; 2029 = 231.1; 2030 = 231.7.
  - United States gross debt: 2019 = 108.2; 2020 = 132.0; 2021 = 124.7; 2022 = 118.8; 2023 = 119.0; 2024 = 120.8; 2025 = 122.5; 2026 = 123.7; 2027 = 124.9; 2028 = 125.9; 2029 = 127.0; 2030 = 128.2.
  - China gross debt: 2019 = 59.4; 2020 = 69.0; 2021 = 70.1; 2022 = 75.5; 2023 = 82.0; 2024 = 88.3; 2025 = 96.3; 2026 = 102.3; 2027 = 105.9; 2028 = 109.2; 2029 = 112.6; 2030 = 116.0.
- Net debt (selected aggregates, percent of GDP):
  - World net debt series (selected formatting preserved as in source): 67.0, 78.2, 75.7, 72.0, 72.0, 73.1, 75.0, 76.1, 76.8, 77.4, 78.0, 78.7 (presented in source with spacing and breaks).
  - Advanced Economies net debt: 73.3, 84.8, 82.0, 78.6, 78.6, 79.6, 81.2, 82.2, 82.9, 83.7, 84.6, 85.6.
  - United States net debt (formatted in source): 81.1, 95.6, 95.5, 91.6, 94.0, 96.5, 98.0, 99.2, 100.4, 101.4, 102.7, 104.0.

### Drivers of Fiscal Outcomes and Risks
- Pandemic legacies and interest:
  - Fiscal policy legacies from the COVID-19 pandemic include higher subsidies, social benefits, other current spending, and rising net interest expenses.
  - Figure 1.2 indicates contributions to higher-than-expected fiscal deficit from revenue (−) and expenditure items (no separate numeric breakdown provided in text aside from conceptual note).
  - Figure 1.3 shows general government interest expenses rising as percent of GDP (chart timeframe 2000–2025 with projection through 2030; no explicit numeric series beyond chart context).
- Coverage and vulnerability:
  - 53 percent of low-income developing countries and 23 percent of emerging markets were at high risk of debt distress or in debt distress.
  - Gross financing needs are expected to remain elevated across many countries.
  - Risks of higher debt levels have increased due to tighter and more volatile financial conditions and heightened economic uncertainty.
- Trade policy, tariffs, and macro-fiscal transmission:
  - Tariffs imposed by importing countries create a negative supply shock: higher prices and reduced output and productivity in the medium term.
  - Exporting countries experience a negative demand shock from tariffs: short-term decline in demand and downward price pressures.
  - Retaliatory tariffs have opposite effects; recent tariff announcements have increased uncertainty and contributed to tighter, more volatile financial conditions and higher borrowing costs.
  - Tariffs directly impact import revenues: higher tariffs may yield increased short-term revenue, but this effect is likely to wane as higher prices lead to declining imports and output.
  - Example scenario: a tariff rate of 100 percent could substantially reduce imports of goods with a price elasticity of −1, resulting in negligible revenue; imports of inelastic goods may experience minimal decline, potentially generating higher revenue.
  - The pause on the April 2 tariffs and ratcheting up of tariff rates between China and the United States announced around April 9 could lead to very different tariff schedules and result in lower import revenues (top-down model-based scenario referenced).

### The Two Largest Economies: United States and China (Highlights)
- United States fiscal position (2024 and projection):
  - 2024 general government fiscal deficit: 7.3 percent of GDP.
  - Projected overall fiscal deficit for 2025: 6.5 percent of GDP (contingent on higher tariff revenues).
  - Primary fiscal deficit declined from 3.9 to 3.6 percent of GDP relative to 2019, while interest expense increased by 1.4 percentage points of GDP compared to 2019 (Figure 1.5).
  - Revenue increased by 0.4 percentage point of GDP in 2024 (partly owing to postponed tax deadlines for some disaster-affected taxpayers).
  - Primary spending as a share of GDP remained broadly unchanged in 2024.
  - Nominal yields and fiscal uncertainty dynamics are illustrated in Figure 1.6.
- China fiscal data scope:
  - Note: Data on China’s public finances in this chapter cover a narrower perimeter of the general government than IMF staff estimates in China Article IV reports. A reconciliation to the broader estimates is referenced to IMF (2024).

*Source: IMF staff estimates, projections, and figures as presented in the chapter 1 PDF (data cutoff dates April 10, 2025 and April 14, 2025).*

### CHAPTER 1 FISCAL POLICy UNDER UNCERTAINTy

### CHAPTER 1 FISCAL POLICy UNDER UNCERTAINTy

### United States: Fiscal projections, interest rates, and risks
- Without significant policy changes, the deficit is projected to drop to 5.6 percent of GDP in the medium term, fueled by a 0.7 percentage point rise in revenues.
- Net interest expenses are projected to remain historically high at about 3.8 percent of GDP.
- The debt-to-GDP ratio could rise by about 1 percentage point annually, reaching 127.6 percent by 2030 (Table 1.2).
- Congressional debates under the budget reconciliation bill will focus on:
  - raising the debt ceiling;
  - extending or making permanent provisions of the Tax Cuts and Jobs Act set to expire at the end of 2025;
  - examining various spending cuts and increases.
- New analysis (Furceri, Gonçalves, and Li, forthcoming) finds:
  - an increase of 10 percentage points of GDP in US public debt between 2024 and 2029 could lead to a 60-basis-point rise in the 5-year forward to 10-year rate;
  - similar results hold for the 10-year Treasury nominal yield.
- Projected fiscal balances are significantly and positively associated with the 10-year term premiums (see Online Annex 1.1).

### China: 2024 outcomes, policy actions, and 2025 stance
- China’s fiscal deficit increased by 0.6 percentage point of GDP in 2024, reaching 7.3 percent of GDP.
- General government revenues fell by 0.4 percent of GDP in 2024, primarily because of a 3.4 percent decline in tax revenues.
- Land sales dropped by 22.4 percent year over year owing to the depressed property market.
- Nontax revenues increased by 25.4 percent, likely driven by contributions from state-owned enterprises and enhanced local government efforts to collect fines and fees.
- Budget execution was slow until September 2024; local government financial vehicles faced financing limitations and net bond issuance from these vehicles turned negative since the last quarter of 2023 despite low spreads.
- Since September 2024, government agencies announced policies including a multiyear plan to address local governments’ hidden debt:
  - China plans to swap 10 trillion yuan of off-budget debt with official debt from 2024 to 2028, which will raise the official debt-to-GDP ratio while alleviating some financing pressures on local governments.
- China’s fiscal stance is expansionary in 2025 with the deficit projected to further increase to 8.6 percent of GDP.
- The on-budget fiscal expansion outlined in the 2025 budget aims to modestly boost consumption and strengthen social safety nets.
- Projected public debt is expected to reach 116 percent of GDP by 2030 (Table 1.2).
- The outlook faces unusually high uncertainty from escalating geoeconomic tensions and prolonged trade policy uncertainty, which could reduce the tax base and necessitate increased fiscal support.

### Advanced economies (excluding the United States): stabilization with divergence
- The average primary deficit in advanced economies (excluding the United States) remained unchanged at 1.6 percent of GDP in 2024.
- The overall deficit increased slightly by 0.1 percent of GDP from 2023 (Table 1.1).
- Lower short-term interest rates and longer debt maturities relative to the United States helped mitigate the rise in interest expenses.
- Term spreads (10- minus 2-year bond yields) have been on a rising trend since mid-2024, driven by heightened risk from trade uncertainty, future inflation and growth, fiscal and monetary policy, and debt management.
- Planned fiscal consolidation is expected to stabilize debt at about prepandemic levels in the medium term, but with significant cross-country differences.
- The weighted average of public debt is projected to surpass 100 percent of GDP by 2030 (Table 1.2).
- Cross-country divergence examples over the next five years:
  - public debt projected to rise by more than 10 percentage points of GDP in Belgium, France, and the Slovak Republic;
  - public debt projected to decline by more than 15 percentage points of GDP in Cyprus, Greece, and Portugal.
- Expenditure pressures that may increase debt risks include population aging (if pension and health care reforms are not enacted) and spending to soften potential impacts of tariffs.
- Military spending in the European Union increased on average by 0.2 percentage point of GDP between 2020 and 2023; in some cases increases exceeded 1 percent of GDP (notably Poland).
- Example: fossil fuel subsidies in Finland amounted to 0.5 percent of GDP in 2024.

### Emerging markets (excluding China): modest expenditure-based consolidation
- The average primary deficit remained stable in 2024 at 1.3 percent of GDP.
- The overall deficit increased slightly to 4.3 percent of GDP in 2024.
- Revenue increases in some oil-exporting countries partially offset rising expenditures.
- Country highlights:
  - Argentina achieved its first primary surplus since 2008 by cutting expenditures by more than 5 percentage points of GDP.
  - Many economies with elections in 2024, and large emerging markets such as Indonesia, Mexico, and Saudi Arabia, reported higher fiscal deficits compared to 2023.
- External conditions and issuance:
  - External debt issuance fell by 20 percent year over year in the first quarter of 2025, while total issuance increased by 6 percent in the same period.
- Projections and drivers:
  - Emerging markets (excluding China) are projected to gradually reduce their primary deficits, mainly through spending cuts.
  - By 2025, the primary deficit is expected to slightly decline by 0.1 percentage point to 1.2 percent of GDP, driven by stricter public spending controls and reforms in countries such as India, Mexico, and Türkiye.
  - The primary deficit should decrease to 0.2 percent of GDP on average by 2030.
  - Under current policies, public debt is projected to rise to 60 percent of GDP by 2030.
  - Notable country projections: debt is expected to increase by more than 18 percentage points of GDP in Romania and 25 percentage points of GDP in Gabon.
- Constraints to improvement include high debt-servicing costs, slow fiscal adjustments, and risks from new sources of unidentified debt.

### Low-income developing countries: aid decline and interest-growth differential concerns
- In 2024, average primary deficits improved from 1.8 to 1.2 percent of GDP.
- Revenue-to-GDP ratios increased because of higher economic growth, partially offset by rising primary expenditures on average.
- Effective interest rates resulted in the highest net interest outlays in two decades, averaging 23 percent of tax revenues.
- The average public-debt-to-GDP ratio decreased from 53.7 percent in 2023 to 52.7 percent in 2024, but remains close to 10 percentage points higher than before the pandemic.
- Many countries face challenges accessing external financing and have seen a recent decline in foreign aid, projected to continue decreasing in the medium term.
  - Example: annual grants as a percentage of GDP in the Republic of Tanzania have fallen to less than one-sixth of the average over the previous two decades.
- By 2025, about two-thirds of low-income developing countries are expected to consolidate their debt, with reductions in public-debt-to-GDP notably exceeding 15 percentage points in Zambia and Zimbabwe.
- The adjustment in many low-income developing countries is expected to be driven more by increased revenues than by spending cuts (example: Ethiopia).
- Despite improvements, fiscal challenges persist due to a declining interest-growth differential that adds to debt risks.
- High net interest expenses are estimated to remain above 2 percent of GDP (20 percent of tax revenues) for all years until 2030.

### Risks to the fiscal outlook and global debt-at-risk
- Risks to the fiscal outlook have intensified since the October 2024 Fiscal Monitor.
- The IMF’s debt-at-risk framework (using information up to December 2024) estimates the likelihood of potential future trajectories of public debt and quantifies the impact of a wide range of factors on future debt levels and their uncertainties.
- Global debt-at-risk three years ahead is estimated at about 117 percent.
- Key percentiles from the debt-at-risk distribution:
  - Median = 97.5
  - 95th percentile = 116.6
- The debt-at-risk analysis complements existing debt-vulnerability tools and forecasts the probability distribution of the global debt path allowing for asymmetries and comparisons across countries and over time.

*Source: CHAPTER 1 FISCAL POLICy UNDER UNCERTAINTy, IMF Fiscal Monitor, April 2025.*

### 1. Global Public Debt-at-Risk 2027

### 1. Global Public Debt-at-Risk 2027

### Overview: Debt-at-Risk distribution and projection
- The median of the global debt distribution for 2027 is fitted to match the corresponding debt reference point projection in the April 2025 World Economic Outlook.
- Upside risks to the global debt outlook (difference between the 95th percentile and the median) are estimated at 20 percentage points of GDP.
- Downside risks (difference between the median and the 5th percentile) are estimated at 15 percentage points of GDP.
- The 95th percentile (debt-at-risk) is estimated to be about 3 percentage points larger than the 50th percentile under heightened geoeconomic uncertainty.

### Drivers of the change in global debt-at-risk between 2026 and 2027
- The global debt-at-risk for 2027 (percent of GDP) is about 2 percentage points of GDP higher than projected in the October 2024 Fiscal Monitor.
- Primary drivers:
  - Higher projected debt levels for 2027.
  - Persistently elevated primary deficits in 2024.
- Major policy shifts since early 2025 have introduced new risks:
  - Soaring tariffs announced by the United States on April 2, 2025, and countermeasures by other countries have escalated uncertainty and tightened global financial conditions.
  - A partial mitigation occurred with the US administration’s April 9, 2025, announcement to pause some country-specific tariffs, but geoeconomic uncertainty and risks of financial turbulence remain elevated.
  - April 2025 World Economic Outlook post-April 9 model-based forecast projects that a ratcheting up of trade wars between China and the United States would result in lower growth outcomes for both countries, with spillovers through global supply chains causing significant negative spillovers on output and fiscal positions in other countries.

### Geoeconomic uncertainty: magnitude and fiscal effects
- Geoeconomic uncertainty has escalated recently, driven by sharp increases in import tariffs and heightened trade and policy uncertainty.
- New analyses indicate that a significant rise in geoeconomic uncertainty (one-standard-deviation rise in the Geopolitical Fragmentation Index) is associated with a public debt increase of about 4.5 percent of GDP in the medium term.
- Mechanisms and quantified effects of geoeconomic uncertainty:
  - Persistent increase in public spending of 0.9 percentage point of GDP in the medium term.
  - Initial decline in revenues of 0.1 percentage point of GDP.
  - Persistent reduction of 2.3 percent in GDP in the medium term.
  - Temporary 0.2 percentage point increase in long-term interest rates.
- Distributional effects:
  - Geoeconomic uncertainty increases both the level of debt and the uncertainty surrounding it, with the 95th percentile rising by about 3 percentage points relative to the 50th percentile.
  - Effects are slightly more pronounced in emerging market and developing economies (EMDEs) than in advanced economies (AEs):
    - Public debt increase associated with geoeconomic uncertainty: 4 percentage points of GDP in AEs and 6 percentage points of GDP in EMDEs.
    - In AEs, the debt rise is primarily driven by a persistent increase in public spending of about 1 percentage point of GDP in the medium term (including other fiscal support and heightened military spending).
    - In EMDEs, the debt rise stems mainly from a significant decline in revenues, especially pronounced in the near term.

### Tighter and more volatile financial conditions originating in the United States
- US financial volatility is a key driver of common factors influencing sovereign bond yields across countries; common factors account for:
  - More than 50 percent of fluctuations in foreign-currency-denominated sovereign bond yields for EMDEs.
  - More than 30 percent of fluctuations in local currency-denominated sovereign bond yields for EMDEs, on average.
- A substantial (two standard deviations) increase in US financial volatility is associated with:
  - A rise in emerging market bond yield volatility of approximately 30 percent after four months.
  - An approximate 8 percent decline in commodity prices and a 20 percent increase in commodity price volatility.
- Example sensitivity:
  - A 100-basis-point increase in the 10-year US nominal interest rate could trigger increases in long-term nominal interest rates peaking at 90 basis points in advanced economies and 100 basis points in emerging markets, with effects lasting over several months.

### Higher-than-expected interest rates and fiscal implications
- Effective yields on government debt are expected to stabilize at elevated levels, but increased market volatility and larger-than-anticipated fiscal deficits heighten the risks of further rises in interest rates and interest expenses.
- Fiscal pressures that could push deficits higher include:
  - Increased defense spending.
  - Initiatives to mitigate the potential impact of tariffs.
  - A challenging landscape for foreign aid.
- Empirical estimates and fiscal crowding-out:
  - A 1 percentage point of GDP increase in primary deficits in EMDEs could lead to a persistent rise in 10-year (analysis referenced).
  - A 1 percentage point of potential GDP increase in interest expenditures typically results in a permanent reduction of about 0.6 percentage point of potential GDP in non-interest expenditures in the medium term.
    - Social benefits decline by an average of 0.5 percent of potential GDP.
    - Public investments fall by an average of 0.1 percentage point of potential GDP.
    - For the average economy, this implies a potential reduction in public investment of about 4 percent from its initial level of 2.5 percent of GDP following a 1 percentage point of potential GDP increase in interest expenses.

### Fiscal adjustment needs, prospects, and effects on debt-at-risk
- Debt-stabilizing primary deficits declined by 0.6 percentage point of GDP on average from 2023 to 2024 (from 2.9 percentage points of GDP in 2023 to 2.3 percentage points of GDP in 2024).
- Share of economies with primary deficits above debt-stabilizing levels increased in 2024:
  - Advanced economies: 57 percent in 2024 compared to 22 percent in 2023.
  - Emerging market economies: 51 percent in 2024 compared to 33 percent in 2023.
  - Low-income developing countries: 36 percent in 2024 compared to 39 percent in 2023.
- By 2030, more than a quarter of countries, representing over two-thirds of the global economy, are projected to have primary deficits above debt-stabilizing levels—even before accounting for potential unidentified debt or new spending pressures.
- Required average adjustments to stabilize debt by 2030:
  - 1.8 percentage points of GDP in advanced economies excluding the United States.
  - 1 percentage point of GDP in emerging markets excluding China.
  - 0.4 percentage point of GDP in low-income developing countries.
- Even optimistic scenarios may leave some countries with unsustainable deficits:
  - Under a scenario with primary deficits 20 percent above past performance, 12 percent of economies (15 countries in the sample) would still have primary deficits above debt-stabilizing primary deficits.
- Effectiveness of fiscal adjustment on debt-at-risk:
  - Fiscal adjustments lower the future debt distribution and reduce uncertainty, especially at the right tail of the distribution.
  - A 1 percent of GDP fiscal adjustment is estimated to reduce the three-year-ahead debt-at-risk by about 0.3 percentage point of GDP in the short term, and 1.2 percentage points in the medium term.

*Source: IMF, Fiscal Monitor: Fiscal Policy under Uncertainty, Chapter 1 — "Global Public Debt-at-Risk 2027" (April 2025).*

### CHAPTER 1 FISCAL POLICy UNDER UNCERTAINTy

### CHAPTER 1 FISCAL POLICy UNDER UNCERTAINTy

### Required adjustment to stabilize public debt
- Share of economies with primary deficit (PD) above the debt-stabilizing primary deficit (DSPD) reported for a sample of 37 advanced economies and 86 emerging market economies (Figure 1.20).
- Panel insights:
  - Blue bars show the share of economies with PD > DSPD in each year.
  - Purple bars indicate the contribution of these economies to global GDP.
  - Values in panel 2 show the share of economies with PD > DSPD in 2030 and the contribution of these economies to global GDP.
  - Adjustment needs are shown as necessary changes in primary deficits to stabilize debt for economies with PD > DSPD in 2030; black dots indicate the weighted average for the income group; green bars represent the interquartile range for adjustment needs.
- Note: The calculation of the debt-stabilizing primary balance is described in Online Annex 1.6.

### Debt-stabilizing primary balance versus optimistic primary-balance forecast
- Comparison (Figure 1.21):
  - Vertical axis: forecast of the primary balance with a 20 percent probability given its historical time series for each country.
  - X-axis: debt-stabilizing primary balance.
  - ARIMA = autoregressive integrated moving average.
- Visual summary includes a 45-degree line and ARIMA top 20 percent forecast interval to compare optimistic forecasts with required DSPD.

### Effects of fiscal adjustments on debt and debt-at-risk
- Empirical findings (Figure 1.22; panels summarized):
  - Panel 1: Effect by percentile of the debt-at-risk distribution three years ahead (quantiles shown from 0.05 to 0.95).
  - Panel 2: Average effect of fiscal adjustment on the level and uncertainty about debt over years after fiscal consolidations (impulse response functions; shaded areas represent the 90 percent confidence interval).
  - Panel 3: Average effect of fiscal adjustment on debt-at-risk (impulse response over time; shaded areas represent the 90 percent confidence interval).
  - Panel 4: Average effect of fiscal adjustment on debt-at-risk in the baseline and in the presence of a fiscal rule (bars are point estimates; lines are confidence intervals).
- Key mechanism: Improvements in the primary balance and real interest rates can more than offset declines in output; fiscal adjustments lead to larger declines in debt-at-risk in countries with fiscal rules, enhancing credibility and amplifying interest-rate reductions.

### Policy conclusions and recommended priorities
- Overall fiscal outlook and risks:
  - The fiscal outlook has deteriorated since the October 2024 Fiscal Monitor.
  - Drivers: major tariffs announcements, heightened uncertainty, financial market volatility, and diminishing foreign aid.
  - Global public debt is now projected to reach nearly 100 percent of GDP by the end of the decade, surpassing the pandemic peak, with gross financing needs set to rise significantly.
  - Sudden and disruptive tightening of financing conditions is described as a clear and present danger.
  - Fiscal policy now faces a more pronounced trade-off among four key objectives: reducing debt, building and expanding buffers to address future shocks, meeting urgent spending needs, and enhancing growth prospects.
- General strategy:
  - A gradual fiscal adjustment within a credible medium-term framework is needed in most countries to bring debt down while building additional buffers against heightened uncertainty.
  - Adjustments must balance the pace and timing of debt reductions with economic growth and be tailored to each country’s circumstances, considering available fiscal space and overall economic conditions.
  - Countries with limited fiscal space should prioritize public spending within their planned budgets and allow automatic stabilizers to operate fully.
  - Countries with fiscal room facing significant spending pressures (including defense spending, example given: Germany) could judiciously utilize available resources within well-defined medium-term fiscal frameworks.
- Country-specific guidance:
  - United States: a significant fiscal adjustment will be required over the medium term to put public debt on a decisively downward path; different policy options could lead to this adjustment and will rely on building social consensus.
  - China: fiscal expansion is welcome but should place greater focus on boosting consumption and supporting the property sector to tackle deflationary pressures.
  - Low-income developing countries: should stay the course in their fiscal adjustment plans.
- Advanced economies and longer-term reforms:
  - Advanced economies with aging populations should reprioritize expenditures, advance pension and health care reforms, remove inefficient tax incentives, broaden the tax base, and pursue active labor policies for their working-wage labor force, including migrants.
  - Examples of tax-base broadening measures: eliminating exemptions and improving the efficiency of tax expenditure (Spain, United Kingdom, and United States); progressively increasing income taxes (United States); eliminating flat taxes on self-employment (Italy).
- Strengthening fiscal frameworks and governance:
  - Medium-term frameworks and modern public financial management systems should anchor adjustment paths and reduce fiscal policy uncertainty.
  - Any permanent increase in fiscal outlays for investment and defense must be coupled with enhanced spending efficiency, strengthened procurement systems (European Union), and improved multiyear fiscal planning and macroeconomic forecasting.
  - Permanent increases in outlays must be backed by credible financing plans detailing the planned mix of tax and spending measures.
  - Trust in fiscal policy can be enhanced by integrating robust institutional frameworks with effective communication strategies and involving stakeholders in reforms.
  - Strengthen compliance with fiscal rules, enhance forecasting, better integrate medium-term plans into annual budgets, and make clear contingency plans for unforeseen developments (examples: Brazil, India, Indonesia, South Africa).
  - Independent fiscal institutions, such as fiscal councils, should be adequately resourced to assess and communicate fiscal plans and reinforce adjustment efforts.
  - Medium-term debt management strategies should be developed simultaneously with fiscal frameworks to incorporate potential financing risks into the fiscal outlook.
- Fiscal and debt transparency:
  - Enhance fiscal and debt governance and debt transparency to improve efficiency and mitigate debt risks.
  - Governments should proactively identify and manage contingent liabilities, particularly those related to state-owned enterprises.
  - Provide clear, detailed, and timely information about debt, including creditor composition and exposure to risks such as interest rate and exchange rate risks; transparency benefits from sound legal underpinnings.
  - Strengthen expenditure controls and implement active cash management to prevent overspending.
- Emerging market and developing economies:
  - Reduce spending and increase revenues by reforming tax systems, broadening tax bases, and improving revenue administration.
  - Phase out energy subsidies and rationalize public wage bills while safeguarding public investment and upgrading social safety nets.
  - Reform state-owned enterprises to enhance resource allocation, foster sector growth, and mitigate fiscal risks.
  - Countries with low tax-to-GDP ratios must reassess tax rates and thresholds (example: Mexico); others might consider increasing VAT rates (Thailand), reintroducing goods and services taxes (Malaysia), and rationalizing tax expenditures (Brazil, Egypt, Kyrgyz Republic).
  - Reforming and phasing out energy and fuel subsidies is vital to limit cuts in other government spending (examples: Morocco reform 2013–2015; Togo).
  - Countries such as Gabon need to rein in public wage bills; others should focus on investing in infrastructure and social programs to protect vulnerable populations (India, Indonesia).
- Crisis preparedness and targeted support:
  - The recent roller coaster in financial markets highlights the need for preparedness against potential severe economic and financial disruptions.
  - In cases of significant financial instability, fiscal policy can support central banks and financial supervisors through tools such as direct lending, guarantees, and equity injections to mitigate excessive deleveraging and restore confidence.
  - Governments could offer timely, targeted, and temporary support to communities and sectors severely affected by trade dislocations; such support must be carefully costed, transparent, and monitored.
  - When trade disruptions are expected to be permanent, active labor market policies and skills retraining become essential; fiscal policy should account for available fiscal space.
- Debt restructuring and international cooperation:
  - Timely and orderly debt restructuring alongside fiscal adjustments is essential for countries facing debt distress.
  - Recent initiatives have streamlined sovereign debt restructuring and reduced timelines; ongoing progress on the Common Framework for countries such as Ethiopia and Ghana is noted.
  - Strengthening these processes further is vital for effective debt restructuring.
  - International cooperation and coordinated concessional financing to low-income developing countries are vital to avoid undue fiscal tightening and human suffering and to sustain development efforts.
- Growth-enhancing fiscal and structural reforms:
  - Advancing fiscal and structural reforms is essential for reigniting medium-term economic growth and mitigating growth-debt sustainability trade-offs.
  - Well-designed fiscal reforms can enhance employment, investment, and growth; targeted tax incentives can stimulate private investment and productivity through research and development.
  - Strengthening spending efficiency, especially in health, education, and infrastructure investment, can raise an economy’s production capacity.

*International Monetary Fund | April 2025.*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2025/english/ch1.pdf_