Global Public Debt Is Probably Worse Than it Looks

IMF Blog, October 15, 2024

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Global public debt is expected to exceed $100 trillion, or about 93 percent of global gross domestic product by the end of this year and will approach 100 percent of GDP by 2030.
This is 10 percentage points of GDP above 2019, that is, before the pandemic.
The October 2024 Fiscal Monitor shows that future debt levels could be even higher than projected, and much larger fiscal adjustments than currently projected are required to stabilize or reduce it with a high probability.
In a severely adverse scenario, global public debt could reach 115 percent of GDP in three years—nearly 20 percentage points higher than currently projected.

Large spending pressures:
- Aging and healthcare demands.
- Green transition and climate adaptation costs.
- Defense and energy security spending due to growing geopolitical tensions.
Optimism bias of debt projections:
- Realized debt-to-GDP ratios five-years ahead can be 10 percentage points of GDP higher than projected on average.
Sizable unidentified debt:
- An analysis of more than 30 countries finds that 40 percent of unidentified debt stems from contingent liabilities and fiscal risks, of which most are related to losses in state-owned enterprises.
- Historically, unidentified debt has been large, ranging from 1 to 1.5 percent of GDP on average, and it increases sharply during periods of financial stress.
Greater vulnerability to global factors:
- Countries increasingly exposed to spillovers from greater policy uncertainty in systematically important countries, such as the United States.

The Fiscal Monitor presents a novel “debt-at-risk” framework linking current macro-financial and political conditions to the entire spectrum of possible future debt outcomes.
The framework goes beyond point estimates to quantify risks from:
- Weaker growth.
- Tighter financing conditions.
- Fiscal slippages.
- Greater economic and policy uncertainty.
Policy implication from scenarios:
- Global public debt in a severely adverse scenario: 115 percent of GDP in three years.

Current fiscal adjustments and adequacy:
- Current fiscal adjustments—on average, of 1 percent of GDP over six years by 2029—even if implemented in full, are not enough to significantly reduce or stabilize debt with a high probability.
- A cumulative tightening of about 3.8 percent of GDP over the same period would be needed for an average economy to ensure a high likelihood of debt stabilization.
Heterogeneity across countries:
- In countries where debt is not projected to stabilize, such as China and the United States, the required effort is substantially greater.
- China and the United States have a much richer set of policy choices than other countries.
Timing and cost of delay:
- Delaying fiscal adjustment increases the required correction and is both costly and risky.
- With inflation moderating and central banks lowering policy rates, economies are better positioned now to absorb the economic effects of fiscal tightening.

Trade-offs of fiscal measures:
- Cuts in public investment have the largest output losses and hurt long-term growth prospects.
- Reducing social transfers hurts vulnerable households and raises inequality.
Policy recommendations by country group:
- Advanced economies:
- Advance entitlement reforms.
- Reprioritize expenditures.
- Increase revenues where taxation is low.
- Emerging market and developing economies:
- Greater potential to mobilize tax revenues by broadening tax bases and enhancing revenue administration capacity.
- Strengthen social safety nets.
- Safeguard public investment to support long-term growth.
Pace of adjustment:
- A measured and sustained pace of adjustment would alleviate fiscal risks while limiting the negative impact on output and inequality by about 40 percent less than a more abrupt tightening.
- Some countries with high risk of debt distress will need front-loaded adjustments.

Source: Global Public Debt Is Probably Worse Than it Looks — October 15, 2024, IMF Fiscal Monitor content