The International Monetary Fund (IMF) warned this Wednesday against the debt projections made by most governments, which it said could be much higher, and He demanded immediate and forceful action to reduce the excessive global debt, which is increasing year after year.
“The most worrying thing is that there are good reasons to believe that Future debt levels could be even higher than currently projected due to persistent spending pressures and a systematic bias in debt projections,” said the director of the fund’s Department of Budgetary Affairs, Vítor Gaspar.
Global debt: what to expect this year
He IMF published this Wednesday the latest data from its fiscal monitor and slightly improved global debt estimates for this yearwhich stand at 93.2% of GDP (compared to the 93.8% estimated in April, in their previous estimates). However, the organization estimated that Global debt will continue to rise at a rate of close to one percentage point per year until reaching 98.7% of GDP in 2029.
Gaspar added that “public debt is very high” and is likely to exceed $1 trillion this year. “Until at the end of the decade it will exceed the peak of the pandemic and will approach 100% of GDP, which is another quite symbolic figure”added the economist. Regarding the global deficit, in 2024 it will close the year at 5% of GDP, one tenth more than estimated last April.
In 2025 the global deficit will be reduced to 4.5% (two tenths less than previously estimated). Medium-term fiscal consolidation is expected to remain modest, with the overall deficit projected to stabilize at 3.8% by 2029, about half a percentage point higher than in 2019.
IMF and World Bank: annual meetings in Washington
The IMF presented the fiscal monitor within the framework of the spring meetings that he is holding these days in Washington together with the World Bank. One of the most important countries to take into account, Gaspar pointed out, is the United States because “It is the main determinant of the global credit cycle.” Its debt will continue to rise over the coming years, it will close 2024 at 122.9% of GDP and in 2029 it will have reached 133.7% of GDP.
“When there is rising debt and uncertainty in fiscal policy in the United States, the fiscal monitor has documented in the past that there are important spillover effects to the rest of the world associated with higher financing costs, so events in the United States are of global relevance“Gaspar noted.
Worse than it seems?
“We believe the risks to the debt outlook are skewed to the upside. The fiscal monitor estimates that, using a new debt-at-risk framework, in a severely adverse scenario, global debt could even be 20 percentage points of GDP higher within three yearsand that would give it a general proportion of around 150% of GDP in 2026,” Gaspar warned.
This situation is worrying for several reasons, among others because “it limits the ability of countries to spend on priority items such as health, education or public investment, as debt repayment absorbs an increasing proportion of tax revenues,” he added. It also reduces the government’s financial capacity to respond to adverse economic and financial shocks, something vital, as could be seen in the pandemic.
“Our conclusion is that now is the time for fiscal policy to take a leap on public debt. Delays, in our opinion, are costly and risky”Gaspar warned.
Source: Ambito
