In the IMF's Fiscal Monitor, global public debt is projected to rise above 100 percent of GDP by 2029. In such a scenario, public debt would be at its highest level since 1948.
“In the fiscal monitor, we project global public debt to go above 100% of GDP by 2029. Public debt risks are widespread and tilted towards debt accumulating even faster. Policymakers must act now to keep debt under control and contain debt risks.” said Vitor Gaspar, Director of the Fiscal Affairs Department, IMF.
The years between the global financial crisis and the pandemic were marked by unusually easy conditions for sustaining debt. Rising debt was accompanied by falling interest rates, leading to an overall stable interest bill on budget. But the situation is now starkly different. Interest rates have increased considerably in global markets, and their path forward is highly uncertain.
“After years of rising debt and falling interest rates, the environment has changed dramatically. Interest rates have increased; financial asset valuations have stretched. The greatest concern is financial turmoil, driven by fiscal financial feedback loops. The time is now to mobilize fiscal policy to deliver debt sustainability and create buffers against future adverse shocks,” added Gaspar.
Prioritizing fiscal policy is essential to support debt sustainability and prepare fiscal buffers to use in case of severe adverse shocks including financial crises.
“Fiscal policy should ensure debt sustainability and create buffers against future adverse shocks and heighten uncertainty. While the politics challenges are significantly, the solutions lie in improving growth prospects and strengthening the trust in the government. Better governance and institutions are key. They support both public trust and economic growth,” explained Vitor.
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