## Policy Challenges and Bringing Down Public Debt

_IMF News, June 7, 2024_

## Source details

**Canonical URL:** [Policy Challenges and Bringing Down Public Debt](https://www.imf.org/en/news/articles/2024/06/07/sp0607-policy-challenges-and-bringing-down-public-debt)

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## Bibliographic details
- Published: June 7, 2024

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### Context and purpose
- Opening Remarks by Deputy Managing Director Kenji Okamura at the Fiscal Policy and Sovereign Debt Conference, June 7, 2024.
- Conference part of the IMF’s Sovereign Debt Network project bringing together leading scholars and senior policymakers to discuss fiscal policy and public debt.

### Key facts and projections
- Global debt: 93 percent of GDP.
- Global debt is 9 percentage points above pre-pandemic highs.
- Global debt is projected to reach around 100 percent of GDP by 2029.
- Forecast national debt-to-GDP ratios by 2028: US 133 percent, China 106 percent, Japan 251 percent.
- Observation: These national levels historically have only been seen during wartime.
- High debt combined with high interest rates leads to rising debt service costs and constrained fiscal space.
- Weak medium term growth prospects compound the fiscal challenge.
- Some economies, particularly low-income countries, are already in debt distress.

### Major risks and channels of spillovers
- High debt in large economies can generate substantial negative spillovers for the global economy via financial channels.
- US debt growth over the next five years and beyond could mean higher-for-longer interest rates transmitted internationally.
- Risk sentiment originating in financial centers can spill over and harm global growth and investment.
- Spillovers can render otherwise sustainable fiscal paths in other countries unsustainable.
- For emerging market and developing economies, sovereign liquidity risks and default risks are interconnected; who holds debt, debt composition, and debt-carrying capacity are critical considerations.

### Four analytical questions highlighted
- What makes a debt reduction plan sustainable, and how can governments commit to ambitious but credible adjustment plans?
  - Growth can help, but a significant and broad-based slowdown in productivity makes this less likely in coming years.
  - Reducing debt for most countries requires curbing budget deficits and building public support for difficult choices.
- What are the implications of rising public debt levels in large economies such as the United States for global spillovers?
  - Policymakers must strengthen their own fiscal policies and frameworks to mitigate spillovers.
  - As shown in the April 2024 Fiscal Monitor, tighter fiscal policy in the US can help reduce spillovers to other countries through financial channels.
- What are the trade-offs of exploiting the “convenience yield” of reserve currencies (e.g., the US dollar), and can it be eroded by fiscal irresponsibility?
  - US public debt provides a funding advantage as a global safe asset; this “exorbitant” privilege can be eroded, likely as a slow-moving process, if the issuer’s creditworthiness is questioned due to high debt.
  - Running large deficits and debts because of the convenience yield can create a vicious cycle.
- How will aging and shrinking populations—including in countries like Japan—influence fiscal outcomes?
  - Many developed countries may face sustained deficits in the not-too-distant future due to demographic pressures.
  - Understanding demographic impacts on fiscal outcomes is crucial for policy navigation.

### Policy tools and recommendations emphasized
- Build public support for deficit reduction through credible medium-term fiscal frameworks.
- Strengthen oversight by independent fiscal institutions.
- Use fiscal rules to anchor expectations about the future path of fiscal policy.
- Prepare for and mitigate negative international spillovers by strengthening domestic fiscal policies and frameworks.
- Recognize the special role and risks associated with reserve-currency issuer liabilities and manage debt levels to protect creditworthiness.

### Purpose of the conference
- Provide a forum to explore the above questions and exchange insights and research to shape fiscal policy trajectories in challenging times.

*Opening Remarks by Deputy Managing Director Kenji Okamura at the Fiscal Policy and Sovereign Debt Conference, June 7, 2024.*

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## References

- [Kenji Okamura](https://www.imf.org/en/About/senior-officials/Bios/kenji-okamura)
- [Fiscal Policy and Sovereign Debt Agenda](https://www.imf.org/en/news/seminars/conferences/2024/06/07/fiscal-policy-and-sovereign-debt)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Proposals for a Sovereign Debt Restructuring Mechanism (SDRM) -- A Factsheet](https://www.imf.org/external/np/exr/facts/sdrm.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2024/06/07/sp0607-policy-challenges-and-bringing-down-public-debt_