The International Monetary Fund (IMF) is sounding the alarm about the massive increase in government debt worldwide. They predict global debt will hit a staggering $100 trillion by the end of the year, up from $97 trillion last year. The US alone accounts for half of the $3 trillion increase.
Debt Levels Reaching Critical Point
The IMF says government debt is expected to reach 93% of global GDP by the end of this year and will approach 100% of GDP by 2030. They’re urging countries to address their debt risks now, while interest rates are still relatively low. Waiting could lead to a costly and risky situation, as the required adjustments will become larger over time.
The Risks of High Debt
The IMF warns that high debt levels and a lack of credible fiscal plans can trigger negative market reactions, making it harder for countries to handle economic turbulence. They also point out that it’s difficult to accurately track all government obligations, and debt forecasts are often overly optimistic.
The IMF’s “debt-at-risk” model suggests that in a worst-case scenario, global public debt could jump to 115% of GDP within three years. This could be caused by weak economic growth, tight financial conditions, and unforeseen policy changes.
Government Spending on the Rise
Despite the risks, the IMF says government spending is actually set to increase. They cite previous research showing a growing push for higher spending across the political spectrum. Countries will also need to spend more to address aging populations, healthcare, climate change, and defense and energy security due to rising geopolitical tensions.
International Concerns
Earlier this year, the United Nations also called for urgent reforms to the international financial system to address the concerns over surging public debt, which they called a “growing burden to global prosperity.”
