## Rising Global Debt Requires Countries to Put their Fiscal House in Order

_IMF Blog, April 23, 2025_

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**Canonical URL:** [Rising Global Debt Requires Countries to Put their Fiscal House in Order](https://www.imf.org/en/blogs/articles/2025/04/23/rising-global-debt-requires-countries-to-put-their-fiscal-house-in-order)

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## Bibliographic details
- Authors: Era Dabla-Norris, Vitor Gaspar, Marcos Poplawski-Ribeiro
- Published: April 23, 2025

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### Overview
- Major policy shifts and recent tariff announcements have increased financial market volatility, weakened growth prospects, and raised risks.
- These developments occur against a backdrop of rising debt levels and strained public finances, with new and permanent increases in spending (such as defense) likely in many countries.
- Rising yields in major economies and widening spreads in emerging markets further complicate the fiscal landscape.

### Key projections and risks
- We project global public debt to increase by 2.8 percentage points this year—more than twice the estimates for 2024—pushing debt levels above 95 percent of gross domestic product.
- Public debt is projected to be nearing 100 percent of GDP by the end of the decade, surpassing pandemic levels.
- Projections reflect the World Economic Outlook reference projections, incorporating tariff announcements made between Feb. 1 and April 4.
- Fiscal Monitor (using data up to December 2024) debt-at-risk scenario:
  - In a severely adverse scenario global public debt could reach 117 percent of GDP by 2027.
  - This would exceed reference projections by almost 20 percentage points and represent the highest level since World War II.
- The Fiscal Monitor estimates that a significant rise in geoeconomic uncertainty could lead to a public debt increase of approximately 4.5 percent of GDP in the medium term.
- Tighter and more volatile financial conditions in the United States may:
  - Have ripple effects on emerging markets and developing economies via higher financing costs.
  - Significantly impact commodity prices, resulting in lower prices and heightened price volatility.
  - Limit essential spending on social programs and public investments due to high interest rates.
- Reduced foreign aid from advanced economies could complicate financing for low-income countries.

### Complex policy tradeoffs
- Fiscal policy must balance:
  - Reducing public debt,
  - Establishing and widening buffers against spending pressures and economic shocks,
  - Meeting urgent spending needs amid weaker growth prospects and higher financing costs.
- Policymakers need to find the right balance between fiscal adjustment and supporting economic growth, tailored to country-specific circumstances.

### Policy recommendations and country-level guidance
- General guidance:
  - Put national fiscal houses in order by implementing prudent policies within robust fiscal frameworks to build public confidence and reduce uncertainty.
  - Prioritize reducing public debt and building buffers while balancing adjustment with growth support.
- Countries with limited fiscal room:
  - Implement gradual and credible consolidation plans.
  - Allow automatic stabilizers, like unemployment benefits, to work effectively.
  - Offset any new spending needs by spending cuts elsewhere or new revenues.
- Countries with greater fiscal flexibility:
  - Use available resources judiciously within well-defined medium-term plans.
  - Ensure fiscal support for businesses and communities impacted by severe trade dislocations is temporary, targeted, transparent, and subject to effective cost management.
- Advanced economies:
  - Tackle aging-related fiscal pressures by reprioritizing spending, advancing pension and healthcare reforms, and broadening the tax base.
- Emerging and developing economies:
  - Enhance tax systems to address historically low revenues.
- Low-income developing countries:
  - Stay the course on fiscal adjustments given financing challenges.
  - Pursue timely and orderly debt restructuring alongside fiscal adjustments when facing debt distress.
- Cross-cutting structural policies:
  - Focus on enhancing potential growth to ease tradeoffs between growth and debt sustainability.
  - Implement well-designed pension and energy subsidy reforms to generate savings for social programs and infrastructure investments.

### Implications
- The fiscal outlook has worsened amid significant policy changes and heightened uncertainty.
- Building public trust, ensuring fair taxation, and managing resources wisely are essential to foster resilience and promote sustainable growth in uncertain times.

*—This blog is based on Chapter 1 of the April 2025 Fiscal Monitor, “Fiscal Policy under Uncertainty.”*

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## References

- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2025/04/22/world-economic-outlook-april-2025?cid=bl-com-SM2025-WEOEA2025001)
- [Fiscal Monitor’s](https://www.imf.org/en/Publications/FM/Issues/2025/04/23/fiscal-monitor-April-2025?cid=bl-com-SM2025-FMOEA2025001)
- [pensions and energy subsidy reforms](https://www.imf.org/en/Blogs/Articles/2025/04/16/how-to-build-public-support-for-energy-subsidy-and-pension-reforms)

_Source: https://www.imf.org/en/blogs/articles/2025/04/23/rising-global-debt-requires-countries-to-put-their-fiscal-house-in-order_