In keeping with the IMF, world authorities debt will attain $100 trillion by the tip of the yr
A man walks past signage for the 2024 IMF-World Bank Annual Meetings in front of the International Monetary Fund headquarters in Washington, DC on October 18, 2024.
Daniel Slim | AFP | Getty Images
The International Monetary Fund warned on Wednesday that the global sovereign debt situation could be worse than most think, citing ballooning budget deficits in the United States and China.
Global government debt will rise to over $100 trillion by the end of 2024, the agency predicts in its annual Fiscal Monitor report. By the end of the decade, the IMF predicts that global government debt will reach 100% of global GDP.
The USA and China account for a significant share of the rising national debt. If the two countries were excluded from the calculations, global government debt to GDP would fall by about 20%, the IMF said.
“National debt could be worse than it looks,” said Vitor Gaspar, IMF director of financial affairs, adding that governments’ debt calculations suffer from an optimistic bias and are prone to underestimates.
According to the report, governments face a “fiscal policy trilemma.” That means they are caught between the need to spend more money to ensure security and growth – and resisting higher taxes while making national debt less sustainable, the report says. Poor countries in sub-Saharan Africa are under the greatest pressure to spend on poverty alleviation while also struggling with fewer tax options and poorer financing conditions.
With unsustainable debt levels, countries' markets are at risk of a sudden sell-off if investors view a country's fiscal position as too poor. This uncertainty can lead to a spillover effect of higher borrowing costs to other economies, even in advanced economies with higher debt tolerance such as the US and China.
The U.S. Treasury Department announced in early October that the country's budget deficit rose to $1.833 trillion, the highest level outside of the pandemic era. There have been several government shutdowns in the United States in recent years as government funding laws became increasingly contentious between politicians and concerns about the country's financial health grew.
The IMF's China country report released in August highlighted the outsized role of local government spending in the country's high fiscal deficit. While it noted that local government spending actually fell in 2023, the impact was offset by lower revenue from expanded tax relief.
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