Global public debt is on track to reach levels last seen around the aftermath of World War II, the International Monetary Fund, IMF, has warned, as higher borrowing costs, rising government spending and geopolitical tensions put increasing pressure on public finances.
The IMF said global public debt is expected to reach 100 percent of gross domestic product, GDP, by 2029. It said the debt trajectory was already worsening before the latest conflict in the Middle East added further pressure to government finances.
“Global public debt is rising again after briefly dipping from historic pandemic-era highs,” the IMF said.
The fund said the Middle East conflict has intensified fiscal pressures through higher energy prices, tighter financial conditions and slower economic growth. According to the IMF, energy importing countries, particularly low income economies, are facing some of the strongest pressures as governments struggle to manage higher costs while maintaining spending on development and social needs. The rising cost of borrowing is also putting more pressure on government budgets.
The IMF said interest payments have increased sharply in recent years, rising from about 2 percent of global GDP to nearly 3 percent. This means governments are spending more money servicing existing debt, leaving fewer resources for areas such as education, infrastructure and other development priorities.
“Bond markets have reacted to these dynamics accordingly. Yields on long-term sovereign bonds have risen and become more volatile,” the IMF said.
The fund also warned that governments relying more heavily on short term borrowing could become vulnerable to sudden changes in financing conditions.
“Large borrowers are issuing more short-term debt to manage interest bills,” the report said. “But this leaves them more exposed to sudden shifts in short-term funding conditions.”
The IMF said increased borrowing by major economies could also reduce the amount of investment capital available to other countries. At the same time, poorer nations are dealing with weaker development assistance and higher debt servicing costs. The fund called on governments to make difficult decisions about spending and focus available resources on their most important priorities.
“The fiscal picture is highly worrisome across countries at all income levels,” it said.
The IMF recommended temporary and targeted support where governments have enough fiscal space to help households and businesses affected by higher energy costs.
“Starting now and reaching into the medium term, rigorous fiscal prioritization is needed as demands on the public purse continue to grow,” the fund said.
It also called for reforms to unsustainable public pension systems and fuel subsidies that disproportionately benefit higher income groups.
“While permanent reforms to unsustainable public pensions and regressive fuel subsidies are difficult, they are essential to help free up funds to retire debt and make transformative investments.”
Beyond reducing spending, the IMF said governments should improve revenue collection and invest in areas that can strengthen long term economic growth. The fund also pointed to artificial intelligence as a potential source of productivity gains, although it warned that automation could disrupt some jobs and put pressure on wages for certain workers. The IMF said policymakers would need to help affected workers develop new skills while ensuring that businesses can benefit from technology.
The warning comes as governments face growing demands for spending on social protection, defence, infrastructure and economic development, while higher interest rates continue to make borrowing more expensive.
