The International Monetary Fund has raised concerns about the rapid rise in global public debt, urging countries, especially emerging markets, to adopt stronger fiscal policies to reduce risks and stabilize their economies.
It’s latest projections show global public debt will increase by 2.8% in 2025, more than double the 2024 estimate, pushing total debt levels past 95% of the gross domestic product.
If current trends continue, public debt could reach nearly 100% of GDP by the end of the decade, exceeding the record levels observed during the COVID-19 pandemic.
The IMF pointed out that recent significant policy changes, such as the U.S. imposing trade tariffs and retaliatory actions from other countries, have contributed to greater financial market volatility, dampened global growth prospects, and increased economic uncertainty.
“These shifts are occurring within a context of rising debt levels and strained public finances, with many governments facing additional spending demands, particularly in defense. The combination of rising yields in major economies and widening spreads in emerging markets further complicates the fiscal landscape,” the IMF stated.
Given these pressures, global fiscal policy faces critical trade-offs: Reducing public debt while maintaining economic stability; Building financial buffers to withstand external shocks and uncertainty; and meeting urgent spending needs, despite higher financing costs and slower growth.
The IMF’s Fiscal Monitor debt-at-risk analysis, based on data through December 2024, outlines a dire worst-case scenario where global public debt could hit 117% of GDP by 2027, the highest level since World War II.
This estimate is nearly 20 percentage points above baseline projections, highlighting rising risks from slower economic growth, declining revenues, and growing spending pressures.
In addition to rising tariffs, geoeconomic uncertainties—like increased defense spending and fiscal support for vulnerable sectors—could further escalate public debt.
The Fiscal Monitor estimates that under adverse conditions, medium-term debt could rise by 4.5% of GDP.
The IMF stressed that countries must strengthen their fiscal policies by implementing solid fiscal frameworks to build public confidence and reduce economic uncertainty.
For nations with limited budget flexibility, gradual and credible fiscal consolidation plans should be adopted, while allowing automatic stabilizers, like unemployment benefits, to operate effectively. Any new spending should be offset by either revenue increases or spending cuts in other areas.
Countries with stronger fiscal capacity should use their resources strategically within well-structured medium-term plans, ensuring that fiscal support for businesses and communities affected by trade disruptions is temporary, targeted, and transparent.
By adopting fiscal discipline, policy transparency, and prudent financial management, nations can reduce risks, bolster their economies, and better navigate the challenges of rising global debt.
