## EXECUTIVE SUMMARY ## Source details **Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/fiscal-monitor/2025/english/execsum.pdf) ## Other formats - [Markdown version](/-/media/files/publications/fiscal-monitor/2025/english/execsum.pdf.md) - [Structured JSON version](/-/media/files/publications/fiscal-monitor/2025/english/execsum.pdf.json) --- ### Fiscal outlook and sources of uncertainty - Escalating uncertainty and substantial policy shifts are reshaping economic and fiscal outlooks. - Major tariff announcements by the United States and countermeasures by other countries are contributing to financial market volatility, deteriorating prospects, and heightening downside risks. - Disinflation has stalled in many countries; growth projections have been significantly downgraded (see April 2025 World Economic Outlook). - Financial turbulence poses considerable downside risks to growth (see April 2025 Global Financial Stability Report). - Public finances were already strained, and debt levels were elevated in many countries. - Heightened uncertainty regarding tariffs and economic policy, rising yields in major economies, and widening spreads in emerging markets—alongside increased defense spending, particularly in Europe, and a challenging foreign aid landscape—are further complicating the fiscal outlook. - Fiscal policy now faces a sharper trade-off between reducing debt, building buffers against uncertainties and accommodating spending pressures, all amidst weaker growth prospects, higher financing costs, and heightened risks. ### Baseline projections and country coverage - Based on the April 2025 World Economic Outlook “reference point” forecast: - Global public debt is projected to rise by an additional 2.8 percentage points of GDP by 2025. - Global public debt is projected to approach 100 percent of GDP by the end of the decade, surpassing the pandemic peak. - More than one-third of countries are expected to see debt increase in 2025 compared to 2024. - Collectively, these economies represent about 75 percent of global GDP and include: China and the United States, as well as Australia, Brazil, France, Germany, Indonesia, Italy, Mexico, Russia, Saudi Arabia, South Africa, and the United Kingdom. - The estimates and projections are based on statistical information available through April 14, 2025. ### Risk metrics and adverse scenarios - Risks to the fiscal outlook have intensified since the October 2024 Fiscal Monitor. - Global debt-at-risk three-years ahead—a metric encompassing all risk determinants to the end of 2024—has increased by 2 percentage points of GDP. - In a severe adverse scenario: - Global public debt could soar to around 117 percent of GDP by 2027. - This would mark levels not seen since World War II and be about 20 percentage points above projections for that year. - Debt levels may continue to rise as revenues and output decline due to higher tariffs and increasing uncertainty (April 2025 World Economic Outlook). - Elevated geoeconomic uncertainties may further increase public debt by pushing up spending, particularly in defense, especially in Europe. - Tighter and more volatile financial conditions in the United States may spill over into emerging market and developing economies, increasing financing costs and lowering commodity prices. - Limited improvements in fiscal positions could further exacerbate the risks associated with rising interest rates, at a time when many nations are already grappling with substantial gross financing needs. - Higher-than-expected interest rates could crowd out essential spending, including social benefits and public investment, while shortfalls in foreign aid further aggravate financing risks in low-income developing countries. - Higher and persistent fiscal deficits in the United States, weaker-than-expected domestic demand in China, prolonged uncertainty, and stagnant productivity growth would further exacerbate fiscal risks. ### Policy guidance and country-specific priorities - Countries should first and foremost put their own fiscal house in order. - A gradual fiscal adjustment, within a credible medium-term framework, is needed in most countries to reduce debt while building buffers against heightened uncertainty. - Adjustments should balance the pace of debt reduction with economic growth, tailored to each country’s specific circumstances, fiscal space, and overall economic conditions. - Countries with limited fiscal space should prioritize public spending and allow automatic stabilizers to operate fully. - Those with room for fiscal maneuver facing significant spending pressures and public investment needs (for example, Germany) can utilize this space within well-defined medium-term fiscal frameworks. - In the United States, substantial fiscal adjustments are necessary to put public debt on a decisively downward path, which will require building social consensus to address ongoing fiscal imbalances. - More broadly, advanced economies with aging populations should: - Reprioritize expenditures. - Advance pension and health care reforms. - Eliminate inefficient tax incentives. - Broaden the tax base. - For China, on-budget fiscal expansion should help support the economy and lower the current account surplus; given higher tariffs and unusually high uncertainty, some additional fiscal support is warranted. - Low-income developing countries should stay the course on planned fiscal adjustment in light of financing challenges. - For many emerging market and developing economies, rationalizing spending and increasing revenues through tax reform, broadening tax bases, and enhancing revenue administration remain critical priorities. ### Strengthening frameworks, transparency, and crisis preparedness - Medium-term frameworks and modern public financial management systems should anchor adjustment paths effectively and reduce fiscal policy uncertainty. - Countries facing new spending needs, particularly in defense, must demonstrate commitment to maintaining the integrity of their own fiscal rules while ensuring transparency. - Any permanent increase in fiscal outlays for investment and defense must be accompanied by: - Enhanced spending efficiency. - Strengthened procurement systems. - Improved multiyear fiscal planning and macroeconomic forecasting to ensure realistic assessments of their impacts on economic growth and fiscal positions. - Credible and detailed financing plans that clarify how increased outlays will be funded. - For countries in debt distress, timely restructuring and coordinated efforts to provide concessional financing are essential, particularly for low-income developing countries. - International cooperation and coordinated initiatives to provide concessional financing are vital to prevent undue fiscal tightening, alleviate human suffering, and sustain development efforts in these nations. - During times of financial instability, fiscal policy can support central banks through direct lending, guarantees, and equity injections to mitigate deleveraging and restore confidence. - Governments should provide timely, temporary, and targeted support to businesses and communities affected by significant trade dislocations, ensuring transparency and careful cost management. - If trade disruptions become permanent, implementing active labor market policies and skills retraining is essential, with fiscal policy facilitating this transition. - Maintaining fiscal discipline is vital; failure risks turning fiscal policy from a source of stability into one of turmoil. ### Fiscal and structural reforms to boost medium-term growth - Advancing fiscal and structural reforms is essential for reigniting medium-term economic growth (Georgieva 2024) and mitigating growth-debt sustainability trade-offs. - Well-designed tax and spending reforms can boost employment and investment. - Improving the efficiency of spending—especially on health, education, and infrastructure—can increase an economy’s productive capacity. - Chapter 2 examines factors influencing the social acceptability of major expenditure reforms (energy subsidies and pensions). Key findings include: - Sentiment regarding reforms from major stakeholders—including households, unions, civil society organizations, private sector entities, and opposition groups—plays a crucial role in advancing reforms. - Design of reforms is essential for acceptability and success. - Building support among households, civil society organizations, unions, and opposition groups is key for advancing significant reform measures. - Design, timing, and accompanying measures—particularly those alleviating impacts on affected groups—are critical for bolstering public support. - In challenging macroeconomic environments, larger, front-loaded measures may be necessary to stabilize the economy and gain public backing. - Enhanced governance, trust, accompanying social transfers, and effective communication strategies are particularly important for fostering acceptability. - Ownership and political commitment are essential for building consensus and enhancing the credibility of reforms. *International Monetary Fund | April 2025* --- _Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2025/english/execsum.pdf_