The $100 Trillion Question: Can Governments Tame the Debt Beast?

Governments face the challenge of controlling the $100 trillion economic tide.

Global public debt across nations, for the first time, is likely to surpass $100 trillion in 2024. The International Monetary Fund has also predicted the faster rise of this projection. The potentiality of growth in public debt would derive from the respective expansion plans supported by the political will that may increase public borrowing.

General Government Debt as a Percentage of GDP

IMF Fiscal Monitor Findings The IMF projects in its latest Fiscal Monitor that global public debt will be 93% of the world's GDP by the end of 2024, reaching above 100% by 2030, while in many countries it will already have exceeded the 99% level experienced during the COVID-19 pandemic. This is 10 percentage points above the 2019 level.

Rising Fiscal Policy Uncertainty Instability in fiscal policy has escalated given the entrenched positions of the political parties on the matter of taxation, according to a report released by the International Monetary Fund. Mounting pressure for a rise in public spending to meet challenges such as environmental transitions, security, and ongoing development needs. Risks of Unsustainable Debt Levels Such high unsustainable debt levels will render countries markets vulnerable to sudden sell-offs should investors feel a nation's fiscal health is less than adequate. Such vulnerability will also spill over to the U.S. and China economies, which tend to be more tolerant of higher levels of debt and consequently will increase borrowing costs for other nations. Budget Deficit Concerns of U.S. The US Treasury Department reported earlier this month that the national budget deficit has reached $1.833 trillion. During these last years, the United States has faced some threats of government shutdown mainly because of the monetary bills becoming hot potatoes among the lawmakers and thereby putting the fiscal integrity of the nation to question. China's Fiscal Challenges In its report for August on China, the IMF noted the great fiscal deficit brought about in large part by the expenditures of local governments. Although local governments spent less in 2023, a decline in revenues resulting from extended grace in tax relief could slightly offset this lowered expenditure.

Spending Brakes

The IMF insisted on greater fiscal consolidation on the grounds that the current period of strong growth and low unemployment represented a prime opportunity for intervention. This working plans only average 1% of GDP between 2023 and 2029 and, as such, were deemed insufficient to bring about impactful debt reduction or stabilization. This would call for a cumulative tightening of 3.8%. In the U.S., China, and other countries where GDP is not expected to balance, much more significant fiscal compressing would be necessary.

Thank you.

 Regards,

Nishant Shelke,

Kautilya, IBS Mumbai.