A man walks past signage for the 2024 IMF/World Bank Annual Meeting outside the International Monetary Fund headquarters in Washington, DC, on October 18, 2024.
Daniel Slim | AFP | Getty Images
The International Monetary Fund warned on Wednesday that global public debt conditions may be more dire than most think, highlighting soaring fiscal deficits in the United States and China.
In its annual fiscal monitor report, the agency projects that global public debt will exceed $100 trillion by the end of 2024. The International Monetary Fund predicts that global public debt will reach 100% of world GDP by the end of this century.
The United States and China account for a large share of rising public debt levels. The International Monetary Fund said that if these two countries were excluded from the calculation, the global public debt-to-GDP ratio would fall by about 20%.
“Public debt may be worse than it looks,” said Vito Gaspar, director of fiscal affairs at the International Monetary Fund, adding that government debt calculations have an optimistic bias and tend to be underestimated.
The report said governments around the world are facing a “fiscal policy trilemma.” That is, they are caught in a dilemma: needing to increase spending to ensure security and growth, while also facing resistance to higher taxes while public debt levels become more unsustainable, the report found. Poor countries in sub-Saharan Africa are under the greatest pressure to spend to alleviate poverty while grappling with lower tax capacity and poorer financial conditions.
Unsustainable debt levels put the country’s markets at risk of a sudden sell-off if investors decide that a country’s fiscal position is too bad. This uncertainty, even in advanced economies with higher debt tolerances such as the United States and China, could lead to spillover effects of higher borrowing costs in other economies.
The U.S. Treasury Department announced in early October that the U.S. budget deficit had risen to $1.833 trillion, the highest level since the outbreak. The U.S. has faced multiple government shutdowns in recent years as concerns over the country’s fiscal health have grown and disputes among politicians over government financing bills have become more intense.
The International Monetary Fund’s country report on China in August highlighted the huge role of local government spending in China’s high fiscal deficit. While it noted that local government spending actually fell in 2023, the impact was offset by lower revenue from extended tax breaks.
