The International Monetary Fund (IMF) in its April 2025 outlook indicated that rising global debt is a major problem that requires fiscal framework adjustment from different countries.
Image: Henk Kruger/African News Agency (ANA)
The International Monetary Fund (IMF) has issued a stark warning in its April 2025 outlook, highlighting the critical issue of rising global debt.
As nations grapple with increasing public finances, the IMF suggested that a re-evaluation of fiscal frameworks was imperative to navigate an uncertain economic landscape.
According to the IMF, existing major policy shifts—particularly recent tariff announcements by the United States, which have prompted retaliatory measures from other countries—were driving financial market volatility and weakening growth prospects.
This backdrop of escalating uncertainty was exacerbated by already high levels of debt in multiple countries, further strained by the necessity of accommodating indelible increases in spending, including defence budgets.
The IMF projects that global public debt will surge by 2.8 percentage points in 2025, more than double the estimates for the previous year, pushing overall debt levels beyond 95% of gross domestic product (GDP).
This trend threatened to persist, with forecasts indicating public debt could approach a staggering 100% of GDP by the decade's end, eclipsing the elevated levels recorded during the COVID-19 pandemic.
In a severely adverse scenario, the IMF suggested that global public debt could soar to 117% of GDP by 2027, marking the highest level since World War II and entailing a dramatic deviation from standard projections. IMF said that 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,” it said.
In light of these challenges, the IMF encouraged the governments to focus on fiscal policy and structural reforms aimed at bolstering potential growth.
“Well-designed pensions and energy subsidy reforms can generate savings that support social programs and infrastructure investments,” the IMF advised, articulating a need for sustainable economic strategies amidst heightened uncertainty.
The IMF noted that after enduring a series of unprecedented economic shocks, the global economy appeared momentarily stabilised, albeit with lacklustre growth rates.
Yet, with rising trade tensions and volatile financial markets, the climate has shifted as policymakers reorder priorities and respond to new dynamics.
The IMF warned that diverging policy approaches risk tight global financial conditions, underscoring how intensified trade wars could stifle both immediate and long-term growth opportunities.
It added that intensifying downside risks dominated the outlook, amid escalating trade tensions and financial market adjustments.
“Divergent and swiftly changing policy positions or deteriorating sentiment could lead to even tighter global financial conditions,” it said.
“Ratcheting up a trade war and heightened trade policy uncertainty may further hinder both short-term and long-term growth prospects. Scaling back international cooperation could jeopardise progress toward a more resilient global economy.”
Waldo Krugell, an economics professor at the North-West University, said that concern about the level of public debt is not only a South African fiscal issue.
“The COVID-19 pandemic necessitated government spending on health response and support to economies, which caused an increase in debt levels across the world. Over the past 3 years, high inflation and high interest rates to fight it have caused the financing cost of debt to increase. High debt levels and their interest repayments can threaten fiscal sustainability.”
Krugell added that this year has brought new shocks.
“The US has stepped back from many international commitments, which means Europe will have to increase defence-related spending, and African countries will have to increase health spending,” Krugell said.
“In addition, domestic industries are asking for fiscal assistance to mitigate the impact of President Trump's tariffs. The IMF recommends that countries stay within their budgetary envelopes and reprioritise spending. As we are seeing with our own third Budget that is not easy.”
Professor Irrshad Kaseeram, from the University of Zululand's economics department, said that it's a critical requirement especially in an environment of uncertainty, governments with low debt have more scope to weather any global shocks to the economy.
“Moreover low National debt implies a responsible, well managed system with good governance which leads to low interest rates thus reducing borrowing costs and thus attracts local and foreign investment.”
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