Global Public Debt Expected to Reach $100 Trillion: IMF Report

Global Public Debt Expected to Reach $100 Trillion: IMF Report

Sub : Eco

Sec : External sector

• Record High Debt Levels:
  • The International Monetary Fund (IMF) has forecasted that global public debt will reach an unprecedented $100 trillion in 2024.
  • This debt level is expected to be 93% of global GDP this year, and it may approach 100% of GDP by 2030. This marks a significant increase of 10 percentage points compared to pre-pandemic levels in 2019.
• Rising Fiscal Pressures:
  • Era Dabla-Norris, the Deputy Director of the IMF’s Fiscal Affairs Department, highlighted several factors contributing to the worsening debt outlook:
  • Increased spending pressures: Countries are facing higher expenditure to address issues like climate change and economic recovery.
  • Overly optimistic debt projections: Current estimates might be underestimating the actual future debt levels.
  • Unidentified debt: Potential hidden or unaccounted debts could lead to a more severe fiscal scenario than anticipated.
• Need for Fiscal Adjustment:
  • The IMF emphasized that it is crucial for nations to implement fiscal discipline to manage their debt levels.
  • Experts stated, “It’s time for countries to get their fiscal house in order.”
  • According to the report, the required fiscal adjustment to bring debt under control would be between 3.0% and 4.5% of GDP on average, which is almost double the size of previous adjustments.
• Worst-Case Scenario:
  • The IMF warned that if current trends continue, global public debt could surge to 115% of GDP by 2026. This would be 20 percentage points higher than the baseline estimate, reflecting the potential for a more severe global debt crisis.

Global Debt

Debt is the amount of money borrowed by an entity that is expected to be paid back at a later time, typically with interest.

Global Debt refers to the total outstanding amount owed by governments, businesses, and individuals across the world. It encompasses both public and private debt.

Composition of Global Debt:

• Public Debt:
  • This is the money owed by governments to domestic and foreign creditors.
  • Governments typically finance this debt by issuing bonds, treasury bills, or loans from international organizations (e.g., the International Monetary Fund or World Bank).
  • Public debt includes national and local government borrowings, often used for infrastructure projects, social programs, and budgetary expenses.
• Private Debt:
  • Refers to the money owed by businesses and individuals to financial institutions, including banks, lenders, and other creditors.
• Types of Private Debt:
  • Corporate Debt: Loans taken by businesses for expansion, operations, or investments, including corporate bonds.
  • Household Debt: Borrowings by individuals, such as mortgages, student loans, credit card debt, and personal loans.