Global Debt-to-GDP Ratio Approaching 100%, Rising Above Pandemic Peak

The IMF sees countries debt growing above 100% of global GDP, Vitor Gaspar, head of the Fund’s Fiscal Affairs Department said ahead of the launch of the Fiscal Monitor (FM) Wednesday (October 23) in Washington, DC.

“Deficits are high and global public debt is very high and rising. If it continues at the current pace, the global debt-to-GDP ratio will approach 100% by the end of the decade, rising above the pandemic peak,” said Gaspar about the main message from the IMF’s Fiscal Monitor report.

The Fiscal Monitor is highlighting new tools to help policymakers determining the risk of high levels of debt.

“Assessing and managing public debt risks is a major task for policymakers. The Fiscal Monitor makes a major contribution. The Debt at Risk Framework. It considers the distribution of outcomes around the most likely scenario. The analysis in the Fiscal Monitor shows that debt risks are substantially worse than they look from the baseline alone. The framework should help policymakers take preemptive action to avoid the most adverse outcomes.”

Gaspar said that there’s a careful balance between keeping debt lower, versus necessary spending on people, infrastructure and social priorities.

“The Fiscal Monitor identifies three main drivers of debt risks. First, spending pressures from long term underlying trends, but also challenging politics at national, continental and global levels. Second, optimistic bias in debt projections. And third, increasing uncertainty associated with economic, financial and political developments.

Spending pressures from long term underlying trends and from challenging politics at national, continental and global levels. The key is for countries to get started on getting debt under control and to keep at it. Waiting is risky. The longer you wait, the greater the risk the debt becomes unsustainable. At the same time, countries that can afford it should avoid cutting too much, too fast. That would hurt growth and jobs. That is why in many cases we recommend an enduring but gradual fiscal adjustment.”