## EXECUTIVE SUMMARY

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### Global debt dynamics and outlook
- Global gross government debt rose to nearly 94 percent of GDP in 2025, and on current trajectories, it will reach 100 percent by 2029, a level previously reached only in the aftermath of World War II.
- The global fiscal gap—the difference between projected primary balances and the levels needed to stabilize the debt ratio—has all but disappeared, from a cushion of more than 1 percent of GDP a decade ago to near zero today.
- Interest payments have risen from 2 percent to nearly 3 percent of global GDP in four years as governments refinance maturing debt at higher rates.
- Global debt-at-risk three years ahead now stands near 117 percent of GDP, with a gap of roughly 20 percentage points between the median projection and the right tail.
- Scenario impacts:
  - Prolonged conflict in the Middle East could increase global debt-at-risk by an additional 4 percentage points.
  - A correction in artificial intelligence–related asset valuations in which US stocks fall by 20 percent with spillovers to global financial conditions could raise global debt-at-risk by a further 2.4 percentage points.

### Drivers of deterioration and asymmetric impacts
- The outbreak of war in the Middle East has disrupted energy supplies, tightened financial conditions, and forced governments to choose between shielding populations from price spikes and preserving fiscal space.
- Fiscal impact is highly asymmetric:
  - Energy-importing countries, particularly low-income developing countries, face the largest costs.
  - The pool of potential beneficiaries is narrower than in past energy shocks because major Gulf exporters are themselves directly affected by the conflict.
- Protectionist pressures and geoeconomic fragmentation are pushing governments toward industrial subsidies and trade-related support with uncertain productivity payoffs.
- Domestic instability and surges in social unrest are associated with lower growth and wider primary deficits.
- Pressures on central bank independence can lift inflation expectations and risk premiums, eroding credibility and raising borrowing costs.

### Country-specific conditions and trajectories
- United States:
  - Running a general government deficit of 7 percent to 8 percent of GDP despite operating near full capacity.
  - Gross debt is projected to reach 142 percent of GDP by 2031.
  - Stabilizing the debt path will require action on both revenue and expenditure, including spending on major entitlement programs.
- China:
  - Near-term fiscal expansion has widened the overall deficit to nearly 8 percent of GDP.
  - Persistent large deficits are expected to push debt toward 127 percent of GDP by 2031.
  - Near-term expansion focused on boosting consumption and supporting the property sector should continue until reflation is durable; stabilizing debt will require significant consolidation over time, tax and social security reforms, and debt restructuring of local government financing vehicles.
- Japan:
  - Higher inflation, GDP growth, and smaller primary deficits are improving debt dynamics, but sovereign yields have climbed to record highs.
- Europe:
  - Several EU members have activated escape clauses to accommodate increasing defense spending; these outlays will likely prove persistent and create trade-offs for countries with limited fiscal space.
- Emerging and frontier markets:
  - Generally enjoyed favorable market access in 2025 aided by a weaker dollar, but debt levels remain elevated.
  - Issuance volumes were halved and maturities shortened sharply for lower-rated borrowers.
- Low-income countries:
  - Interest payments have reached historic highs relative to revenue.
  - Declining amounts of aid are creating financing gaps some countries cannot cover.

### Shifts in sovereign debt markets and transmission
- As central banks unwind balance sheets, private (and often leveraged) investors are the marginal buyers of government bonds; hedge funds now play a larger role in intermediation.
- Selected major emerging markets have increased local currency issuance absorbed by domestic investors.
- Increase in US Treasury security supply is compressing the safety premium that US Treasuries have traditionally commanded—an erosion that pushes up borrowing costs globally.
- Some systemic economies, notably the United States, have shortened the maturity profiles of their debt, increasing exposure to sudden shifts in short-term funding conditions.
- Supply-driven increases in US yields spill over almost one for one to foreign bond markets, disproportionately affecting countries reliant on external financing.

### Policy recommendations and priorities
- Advanced economies with large debt loads need concrete, well-sequenced consolidation measures, not aspirational medium-term targets.
- For the United States: action on both revenue and expenditure, including entitlement programs, is required to stabilize the debt path.
- European governments must reconcile defense commitments with aging-related pressures through tangible shifting of spending priorities.
- Emerging markets should:
  - Address contingent liabilities.
  - Phase out fiscally draining fuel subsidies.
  - Broaden tax bases as central elements of credible medium-term fiscal plans.
- China should continue near-term fiscal expansion until reflation is durable and pursue medium-term consolidation, tax and social security reforms, and debt restructuring for local government financing vehicles.
- Low-income countries must prioritize domestic revenue mobilization given declining external aid; well-executed tax administration reforms can deliver meaningful gains.
- Policy responses to higher energy costs should be tightly calibrated:
  - Target vulnerable households and viable firms.
  - Avoid broad-based price subsidies where they carry large fiscal costs, are difficult to unwind, or suppress domestic price signals.
  - Domestic fuel and gas prices should continue to reflect international price movements and support demand adjustment, even when temporary targeted support is in place.
- Across all country groups:
  - Fiscal policy must become more forward-looking and structurally anchored.
  - Safeguarding the independence of central banks and the integrity of fiscal frameworks is essential.
  - Clear communication of fiscal realities and enhanced transparency can help anchor expectations and build support for needed adjustment.

*International Monetary Fund | April 2026*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2026/april/english/execsum.pdf_