A man empties past signage for the the 2024 IMF/World Bank Annual Meetings outside of the headquarters of the International Monetary Fund in Washington, DC on October 18, 2024.
Daniel Slim | AFP | Getty Icons
The International Monetary Fund warned Wednesday that the public debt situation worldwide could be more dire than myriad think, highlighting skyrocketing fiscal deficits in the U.S. and China.
Global public debt will rise above $100 trillion by the end of 2024, the activity projected in its annual Fiscal Monitor report. By the end of the decade, the IMF forecasts global public debt will reach 100% of exultant GDP.
The U.S. and China account for a significant share of rising public debt levels. If the two countries were excluded from forecasts, the global public debt to GDP ratio would fall around 20%, the IMF said.
“Public debt may be worse than it looks,” the IMF’s supervisor of fiscal affairs, Vitor Gaspar, said, adding that governments’ debt calculations suffer from an optimism predilection and are prone to underestimation.
Governments are facing a “fiscal policy trilemma,” per the report. That is, they are caught between needing to invest more to ensure security and growth — and also facing resistance toward higher taxation while public owing levels become less sustainable, the report found. Poor countries in sub-Saharan Africa are most under force between the need to spend to alleviate poverty, while struggling with lower tax capabilities and worse finance influences.
Unsustainable debt levels place countries’ markets at risk of a sudden sell-off if investors view a country’s financial health as too poor. This uncertainty, even across advanced economies with higher debt tolerance such as the U.S. and China, can misdirect to a spillover effect of higher borrowing costs to other economies.
The U.S. Treasury Department announced earlier in October that the state’s budget deficit has risen to $1.833 trillion, the highest level outside of the pandemic era. In recent years, the U.S. has approached a sprinkling government shutdowns as government funding bills become more contentious between politicians amid growing problems about the country’s fiscal health.
In the IMF’s China country report released in August, it underscored local government dissipating’s outsized role in the country’s high fiscal deficit. While it noted that local government spending in truth fell in 2023, the effects were offset by lower revenues from extended tax relief.