The International Monetary Fund (IMF) is sounding the alarm on skyrocketing levels of debt held by governments around the world.
In its newest Fiscal Monitor Report, the IMF says global debt is expected to surpass $100 trillion by the end of the year.
That’s up from $97 trillion a year ago, with the United States accounting for about half of the $3 trillion increase.
The IMF says government debt is expected to reach about 93% of global gross domestic product by the end of this year and will approach 100% of GDP by 2030.
The report argues countries should confront their debt risks now, while interest rate reversals give lawmakers space to implement fiscal tightening measures.
“With inflation moderating and central banks lowering policy rates, economies are better positioned now to absorb the economic effects of fiscal tightening.
Delaying would be both costly and risky, as the required correction grows as time goes by; and experience shows that high debt and lack of credible fiscal plans can trigger adverse market reaction, constraining room to maneuver in the face of turbulence.”
The report also highlights the difficulty in truly identifying all government obligations, warning debt forecasts are often overly optimistic.
The IMF says its “debt-at-risk” model suggests that in a severely adverse scenario, global public debt could surge to 115% of GDP within three years due to the potential for weaker growth amid tight financial conditions and other factors like unforeseen policy changes.
Despite the risks, the IMF says government spending is actually set to increase.
“Previous IMF research has shown that fiscal discourse across the political spectrum has increasingly tilted toward higher spending.
And countries will need to increasingly spend more to cope with aging and healthcare; with the green transition and climate adaptation; and with defense and energy security, due to growing geopolitical tensions.”
Earlier this year, the UN also called for “urgent reforms” to the international financial system to address the concerns over surging public debt, which it referred to as a “growing burden to global prosperity.”
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