New US duties will push the global public debt over the levels of the pandemic period at almost 100% of world GDP by the end of the decade, according to IMF.
The latest IMF Fiscal Monitor predicts that global public debt will increase by 2.8 percentage points reaching 95.1% of world GDP in 2025. The upward trend is likely to continue, reaching 99.6% of world GDP by 2030.
Global public debt culminated in 2020, reaching 98.9% of GDP as governments have lent a large borrowing for COVID-19 rebuilding and production shrunk. Debt declined ten percentage points within two years.
But it begins to grow again and the last prediction shows its acceleration.
“Significant announcements for duties from the United States, countermeasures from other countries and extremely high levels of uncertainty, contribute to the deterioration of prospects and increasing risks,” the IMF said in the report.
He adds that this results in more difficult choices for governments as their budgets are pressured by higher defense costs, demands for more social support and increasing cost of debt service that could be increased due to further inflationary pressure.
The annual budgetary deficits of the governments are projected to reach an average of 5.1% of GDP in 2025, compared to 5% in 2024, 3.7% in 2022 and 9.5% in 2020, according to the report.
Deceleration of growth, more debt
The outlook for budgets is based on the IMF’s “provision” to increase world GDP by 2.8% this year in the most recent global economic prospects (World Economic Outlook), including duty developments by April 4. Economic, as well as the budgetary, perspective, will deteriorate when the stricter duties began to affect President Donald Trump and reciprocal measures.
Debt level can exceed 117% by 2027 – forecast in an extremely unfavorable scenario – “if revenue and production are reduced more than current forecasts due to increased duties and more weak development prospects”.
A debt at this level would be the largest percentage of GDP after World War II, the IMF said.
Much of the debt increase is concentrated in the larger economies, said IMF fiscal affairs director Vitor Gaspar. About one -third of 191 IMF member states now see debt rise at a faster pace compared to the pre -pandemic period, but they make up about 80% of world GDP, he added.
Increasing pressures can lead to increased demands for social spending, especially in countries that are vulnerable to commercial shocks that can push costs to higher levels, the report said.
The difficulties add to a decline in US development aid and other richer countries, continuing a trend in recent years, “and this means that these countries will face even more intense challenges than if things were different,” Gaspar said.
Improvement in the US for the time being
The IMF provides for a slight improvement in the annual US fiscal deficit in the next two years at 6.5% of GDP in 2025 and 5.5% in 2026, compared to 7.3% in 2024.
“The performance of the US economy has been strong in recent years and this is helping the budget. It helps in the US, it helps everywhere, “Gaspar said.
But the US forecast presupposes that the tax cuts adopted by Republicans in 2017 will end at the end of the year as planned. The Trump government wants to extend them, with experts saying that this would add about 4 trillion. dollars to US debt in a decade without compensation.
China’s fiscal deficit is expected to increase in 2025 to 8.6% of GDP from 7.3% of GDP in 2024, reaching 8.5% of GDP in 2026.
Despite the increase in debt pressures, the IMF insists on its recommendation to governments to prioritize debt reductions in order to build fiscal embankments so that they can face future financial shocks that will require a subtle balance.
“Countries with limited space in government budgets should gradually implement stabilizing plans and allow automatic stabilizers, such as unemployment benefits, work effectively,” the IMF said. “Any new needs for expenditure should be offset by cuts elsewhere or new revenue.”
Source: RES – EIA