IMF Director for Fiscal Affairs Department, Vitor Gaspar; flanked by Deputy Director for Fiscal Affairs Department, Era Dabla-Norris; and Davide Furceri, Division Chief for Fiscal Affairs Department during the released of the IMF's Fiscal Monitor report in Washington D.C. on Wednesday.
Image: IMF/X
The International Monetary Fund (IMF) has issued a stark warning that over one-third of countries are set to experience an increase in public debt by 2025, compared to the previous year.
The concerns arise amidst escalating uncertainties and significant policy shifts that are altering economic and fiscal landscapes globally..
According to the IMF’s Fiscal Monitor report released on Wednesday, these economies collectively represent about 75% of global GDP and included major players— China and the United States—as well as Australia, Brazil, France, Germany, Indonesia, Italy, Mexico, Russia, Saudi Arabia, South Africa, and the United Kingdom.
The Fiscal Monitor projects global public debt to increase by 2.8 percentage points this year—more than twice the estimate for 2024—pushing debt levels above 95% of world gross domestic product.
Vitor Gaspar, IMF director for the fiscal affairs department, said global public debt was high and rising.
Gaspar said policymakers were facing tough tradeoffs between reducing debt, meeting urgent spending needs and maintaining growth. She said getting fiscal policy right was essential at a time of heightened uncertainty.
“Debt risks were already elevated. According to the Fiscal Monitor’s debt-at-risk, which utilizes data up to December 2024, in a severely adverse scenario global public debt could reach 117% of GDP by 2027. This would represent the highest level since World War II, exceeding reference projections by almost 20 percentage points,” Gaspar said.
“Risks to the fiscal outlook have further intensified. Debt levels may rise even further than the debt-at-risk estimates if revenues and economic output decline more significantly than current forecasts due to increased tariffs and weakened growth prospects.
“Additionally, escalating geoeconomic uncertainties could heighten debt risks, driving up public debt through increased expenditures, particularly in defense. Demands for fiscal support could also rise for those vulnerable to severe disruptions from trade shocks, pushing up spending.”
Global public debt projections have been revised upwards, while tariffs, uncertainty and market volatility, increased defense spending, and challenging foreign aid are intensifying risks.
The Fiscal Monitor estimates that a significant rise in geoeconomic uncertainty could lead to a public debt increase of approximately 4.5% of GDP in the medium term.
Gaspar said countries must implement gradual fiscal adjustments within credible medium-term frameworks to reduce debt and build buffers against heightened uncertainty.
She said reforms to major expenditure programs, such as energy subsidies and pensions, were crucial to reducing fiscal vulnerabilities while fostering growth.
“Countries with limited room in government budgets should implement gradual and credible consolidation plans and allow automatic stabilizers, like unemployment benefits, to work effectively,” Gaspar said.
“Any new spending needs should be offset by spending cuts elsewhere or new revenues. For countries with greater fiscal flexibility, it is important to utilize available resources judiciously within well-defined medium-term plans. Fiscal support for businesses and communities impacted by severe trade dislocations should be both temporary and targeted, with a strong emphasis on transparency and effective cost management.
“Additionally, fiscal policy, alongside other structural policies, should focus on enhancing potential growth. This can help ease challenging tradeoffs between growth and debt sustainability. For instance, well-designed pensions and energy subsidy reforms can generate savings that can be used to support social programs and infrastructure investments.”
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