A man walks past signs for the 2024 Annual Meetings of the International Monetary Fund and World Bank outside the International Monetary Fund's headquarters in Washington, D.C., on October 18, 2024.
Daniel Slim | AFP | Getty Images
The International Monetary Fund warned Wednesday that the public debt situation around the world may be more dire than most people think, highlighting high fiscal deficits in the United States and China.
In its annual financial monitoring report, the agency expected that global public debt would rise to more than $100 trillion by the end of 2024. By the end of the decade, the International Monetary Fund expects global public debt to reach 100% of global GDP.
The United States and China account for a large share of rising public debt levels. The International Monetary Fund said that if the two countries were excluded from the calculations, the ratio of global public debt to GDP would decrease by about 20%.
“Public debt may be worse than it appears,” said IMF Finance Director Vitor Gaspar, adding that governments’ debt accounts suffer from an optimism bias and tend to be underestimated.
Governments face a “triple dilemma in fiscal policy,” according to the report. The report found that these countries are caught between needing to spend more to ensure security and growth – as well as facing resistance to higher taxes as public debt levels become less sustainable. Poor countries in sub-Saharan Africa are most pressured between the need to spend on poverty alleviation, while struggling with lower tax capacities and worse financial conditions.
Unsustainable debt levels put countries' markets at risk of sudden sell-offs if investors perceive a country's financial health to be very poor. This uncertainty, even in advanced economies with greater debt sustainability such as the United States and China, could lead to a spillover effect of higher borrowing costs for other economies.
The US Treasury Department announced earlier in October that the country's budget deficit had risen to $1.833 trillion, the highest level outside the pandemic era. In recent years, the United States has come close to closing several government institutions, as government funding bills have become more controversial among politicians amid growing concerns about the country's financial health.
An IMF report on China released in August emphasized the outsized role played by local government spending in the country's high fiscal deficit. While she noted that local government spending did decline in 2023, the effects were offset by lower revenues from the extended tax break.
