The world’s total public debt is set to exceed $100 trillion this year for the first time, and may grow more quickly than forecast as political sentiment favors higher spending and slow growth amplifies borrowing needs and costs, the International Monetary Fund said on Tuesday.
The IMF’s latest Fiscal Monitor report showed global public debt will reach 93% of global gross domestic product by the end of 2024 and approach 100% by 2030. That would exceed its 99% peak during COVID-19. It would also be up 10 percentage points from 2019, before the pandemic exploded government spending.
Released a week before the IMF and World Bank hold annual meetings in Washington, the Fiscal Monitor said there are good reasons to believe future debt levels could be well higher than currently projected, including a desire to spend more in the U.S., the world’s largest economy.
“Fiscal policy uncertainty has increased, and political red lines on taxation have become more entrenched,” the IMF said in the report. “Spending pressures to address green transitions, population aging, security concerns, and long-standing development challenges are mounting.”
CAMPAIGN SPENDING PROMISES
The IMF’s concerns about rising debt levels comes three weeks before a U.S. presidential election in which both candidates have promised new tax breaks and spending that could add trillions of dollars to federal deficits.
Republican presidential candidate Donald Trump’s tax cut plans would add some $7.5 trillion in new debt over 10 years, more than twice the $3.5 trillion added from the plans of Vice President Kamala Harris, the Democratic nominee, according to the central estimates the Committee for a Responsible Federal Budget (CRFB), a budget think-tank.
The report finds that debt projections tend to underestimate actual outcomes by sizeable margins, with realized debt to GDP ratios five years ahead averaging 10% higher than originally forecast.
And debt could be further increased significantly by weak growth, tighter financing conditions and greater fiscal and monetary policy uncertainty in systemically important economies such as the U.S. and China. The report includes a “severely adverse scenario” involving these factors that shows global public debt could reach 115% in just three years, 20 percentage points higher than currently projected.
(Reuters)