The Debt of Countries To Grow Alarmingly in the Coming Years: IMF
Treasury building in Washington D.C., U.S. X/@BloombergAsia
October 23, 2024 Hour: 10:50 am
U.S. debt is expected to reach 122.9 percent of GDP by the end of 2024 and 133.7 percent of GDP by 2029.
On Wednesday, the International Monetary Fund (IMF) raised concerns about the systematic bias in debt projections made by most governments and called for immediate and decisive action to reduce the excessive global debt, which continues to rise year after year.
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“What is most concerning is that there are good reasons to believe that future debt levels could be even higher than currently projected, due to persistent spending pressures and a systematic bias in debt projections,” said Vitor Gaspar, the IMF’s Director of the Fiscal Affairs Department.
The IMF released the latest data from its Fiscal Monitor and slightly improved the global debt estimates for this year, placing it at 93.2 percent of GDP (compared to the 93.8 percent estimated in April, in its previous estimates). However, the organization predicted that global debt will continue to rise at a rate close to one percentage point per year, reaching 98.7 percent of GDP by 2029.
“Public debt is very high. It is likely to exceed a trillion dollars this year and will continue to rise until it surpasses the pandemic peak by the end of the decade and approaches 100 percent of GDP, which is another quite symbolic figure,” added Gaspar.
As for the global deficit, it is expected to close 2024 at 5 percent of GDP, one-tenth higher than estimated last April. In 2025, the global deficit is expected to decrease to 4.5 percent. Medium-term fiscal consolidation is expected to remain modest, and the overall deficit is projected to stabilize at 3.8 percent by 2029, around half a percentage point higher than in 2019.
One of the countries to watch closely is the United States, as it “is the main determinant of the global credit cycle.” Its debt will continue to rise in the coming years, closing 2024 at 122.9 percent of GDP and reaching 133.7 percent of GDP by 2029.
“When there is rising debt and fiscal policy uncertainty in the United States, the Fiscal Monitor has documented in the past that there are significant spillover effects to the rest of the world, associated with higher financing costs, making events in the United States of global relevance,” Gaspar noted.
Worse than it seems?
On Wednesday, the IMF presented the Fiscal Monitor as part of its spring meetings being held in Washington along with the World Bank. This report identifies reasons why global public debt might be worse than it appears, including spending pressures arising from underlying trends—technological change and economic transformation, climate change, and demographics—and political challenges at the national, continental, and global levels.
Also contributing are the aforementioned optimistic bias in debt projections and the inherent uncertainty associated with economic, financial, and political developments. This time, the Fiscal Monitor focuses heavily on government debt worldwide and the risks associated with debt, and on how policymakers should address these challenges.
“We believe the risks to debt prospects are tilted upward. The Fiscal Monitor estimates that, using a new debt-at-risk framework, in a severely adverse scenario, global debt could even be 20 percentage points of GDP higher within three years, which would bring the overall ratio to around 150 percent of GDP by 2026,” Gaspar warned.
This situation is concerning for several reasons, including that “it limits countries’ ability to spend on priority items like health, education, or public investment, as debt service consumes an increasingly larger share of fiscal revenues,” he added. It also reduces the government’s financial capacity to respond to adverse economic and financial shocks, something crucial, as seen during the pandemic.
“Our conclusion is that now is the time for fiscal policy to take a leap on public debt. Delays, in our view, are costly and risky,” Gaspar warned.
teleSUR/ JF Sources: IMF – EFE
