Global public debt is very high. It is expected to exceed $100 trillion, or about 93 percent of global gross domestic product by the end of this year and will approach 100 percent of GDP by 2030. This is 10 percentage points of GDP above 2019, that is, before the pandemic.
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| “The United States and China, two largest economies” – IMF |
Worse Than Expected
The fiscal outlook of many countries might be worse than expected for three reasons: large spending pressures, optimism bias of debt projections, and sizable unidentified debt.
Previous IMF research has shown that fiscal discourse across the political spectrum has increasingly tilted toward higher spending. And countries will need to increasingly spend more to cope with aging and healthcare; with the green transition and climate adaptation; and with defense and energy security, due to growing geopolitical tensions.
Larger Fiscal Consolidation
If public debt is higher than it looks, current fiscal efforts are likely smaller than needed.
In countries where debt is not projected to stabilize, such as China and the United States, the required effort is substantially greater. But these two largest economies have a much richer set of policy choices than other countries.
Focus On People
Such large fiscal adjustments, if not well calibrated, will entail large output losses as aggregate demand falls and can harm vulnerable groups and lead to higher inequality. IMF
