Global Debt Levels Surpassing Predictions, China and US Leading Contributors, IMF Warns
IMF issued a warning on Wednesday that global debt levels are rising at a faster pace than previously estimated, with China and the United States leading the pack, writes Winston Mwale.
WASHINGTON, DC - The International Monetary Fund (IMF) issued a warning on Wednesday that global debt levels are rising at a faster pace than previously estimated, with China and the United States leading the pack, writes Winston Mwale.
Vitor Gaspar, head of the Fiscal Affairs Department, addressed reporters at a press conference for the Fiscal Monitor report, stating that despite efforts to normalize fiscal policies after the pandemic, global public debt remains elevated and is projected to grow faster than anticipated.
“Three years after the pandemic, fiscal policy has moved a long way towards normalization. Already, in 2021 and 2022, debt and deficits fell rapidly from record levels to a low for extraordinary support in the early stages of COVID-19. Many countries suspended fiscal rules. Now, most of these countries plan to go back to rules, often after some rethinking. However, despite having come all the way down from unprecedented levels reached in 2020, global public debt is more elevated and projected to grow faster than foreseen before the pandemic,” Gaspar explained.
Gaspar further highlighted that the trend of increasing global debt levels is being shaped by some of the world's largest economies, including Brazil, China, Japan, South Africa, Turkey, the UK, and the US.
These countries are projected to experience increases in public debt ratios exceeding five percentage points of GDP between 2023 and 2028, with China and the US contributing the most to the overall increase.
Furthermore, Gaspar revealed that 65 percent of countries outside of this group are already in debt distress or are at high risk of debt distress, calling for urgent action to reduce or forgive debt for these nations.
“The IMF has as one of its priorities contributing to easing those financing constraints. And it's calling on the global community and the community of creditors to act. One important aspect is to act on timely debt resolution. The G20 has a common framework to resolve these issues. It's important to have it working more expeditiously than it has up until now. And the IMF, the World Bank, and the India presidency of the G20 have put in place a global sovereign roundtable that is meant to help bring together important stakeholders in this direction,” said Gaspar.
However, many countries are facing immediate challenges in financing due to persistently high inflation and the recent Russian invasion of Ukraine.
“More than 130 million people in Africa alone are living under extreme food insecurity. So what we recommend in these perspectives, yes, you need a tight fiscal policy for the reasons that have already been mentioned. One is obviously to contain inflation, but the other is these heightened debt sustainability concerns and the lack of access to financing under these much tighter global financial conditions, especially for low-income countries,” Gaspar concluded.
As global debt levels continue to soar, the IMF is urging action to address the issue and provide the necessary support to countries in need.
The full report is available for download below.
