Rising Debt Levels and Fiscal Adjustments

Global public debt is high, and rising. It exceeded $100 trillion in 2024 and is expected to approach 100 percent of global GDP by decade's end. The final figure may well be even higher because of large spending pressures and a chronic underestimation of debt projections.

The global fiscal situation deteriorated in 2024, but with significant differences across countries. The global fiscal deficit reached an average of 5.1 percent of GDP, whereas public debt rose by 1 percentage point to 92.3 percent of GDP. This reflects the continuing legacies of high spending from the COVID-19 pandemic, and rising net interest expenses.

Debt servicing costs are currently squeezing the space available to finance much-needed investment or critical spending for development, while a shortfall in foreign aid poses an additional risk for low-income countries.

Although about two-thirds of countries anticipate stabilizing or reducing their debt by 2029, levels will remain elevated compared with pre-pandemic figures.

Currently, expansive fiscal policies are contributing to increased term premiums on government bonds–raising borrowing costs and dampening economic activity. Left unaddressed, these pressures could lead to solvency problems for many vulnerable countries. Already, 53 percent of low-income developing countries and 23 percent of emerging market economies are at high risk of debt distress or are already in debt distress.

Moreover, the significant uncertainty discussed in Pursuing Durable Growth in an Uncertain World, is impacting fiscal outlooks as well as growth. Recent analysis suggests that increased geoeconomic uncertainty is linked to a rise in public debt of about 4.5 percent of GDP in the medium term. This is largely a result of widening fiscal deficits, with rising expenditure and falling revenues.

A strategic pivot in fiscal policy is urgently needed, focused on growth-oriented fiscal adjustments, adherence to stricter spending rules, and reform of key expenditure programs such as pensions and energy subsidies, which are a significant part of national budgets.

Countries with unsustainable public debt need to be proactive in restoring sustainability, including in some cases by making the difficult decision to seek debt restructuring. To that end, the Global Sovereign Debt Roundtable, which the IMF co-chairs, published the Restructuring Playbook to help country authorities with key steps, concepts and processes when considering debt restructuring.

Most countries can adopt a policy of gradual fiscal adjustment to address rising global public debt and mitigate associated risks. This would also have the benefit of producing the needed fiscal buffers to navigate prevailing global uncertainties.

Countries with limited room for fiscal maneuvers must reprioritize public spending. Those with more space can choose to expand in line with their medium-term goals. Advanced economies with aging populations should promote entitlement reforms and broaden tax bases. Emerging markets and developing economies can mobilize revenue by reforming tax systems, phasing out energy subsidies, and rationalizing public spending.

The need for swift, but gradual, fiscal action is imperative. Delaying adjustments means more substantial and possibly more disruptive measures in the future. Proactive and coordinated efforts now are key to fiscal sustainability and to ensuring resilience in the long term.

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