IMF warns sovereign debt will soon exceed 100 percent threshold

Regional Economic Outlook Report to be released today amid expectations of further growth reduction
IMF warns sovereign debt will soon exceed 100 percent threshold

The global economy is witnessing a steady increase in sovereign debt, with projections indicating that it will surpass 100 percent of the world’s GDP in the near future.

IMF Director of Fiscal Affairs Department Vitor Gaspar revealed this statistic during one of the ongoing annual meetings of the International Monetary Fund (IMF) and the World Bank in Marrakesh.

Read more: IMF: Global economy not knocked out, yet challenged

“Worldwide, debt levels are generally elevated, and borrowing costs are climbing. Global public debt is expected to increase to more than 93 percent of GDP in 2023 and to rise onwards, mainly due to major economies, like the United States and China.”

Gaspar emphasized that the global situation does not currently constitute a debt crisis. Nevertheless, he stressed the importance of tackling challenging aspects such as future taxation, expenditure, and investment.

He elaborated on the fact that achieving a prudent equilibrium in debt reduction policies would be challenging yet essential.

“Countries everywhere are faced with multiple spending pressures. Under such conditions, political red lines limited taxation at an insufficient level translate directly into larger deficits that push debt to ever‑rising heights. Something must give. Policy ambitions must be scaled down or political red lines on taxation moved if public debt sustainability and financial stability are to prevail.”

Smart policy mix

“The Fiscal Monitor shows that a smart policy mix is the way out of this trilemma,” Gaspar added.

Gaspar also faced inquiries about the pressing concern of a potential government shutdown in the U.S., as lawmakers grappled with passing spending legislation to guarantee the uninterrupted funding and functioning of crucial services.

“The U.S. has ample policy instruments to control these developments and will have to choose to use them. And the U.S. can also introduce a stronger set of budget rules and procedures, doing away with the debt ceiling brinkmanship that creates uncertainty and volatility, without contributing much to fiscal discipline in the U.S.,” he replied.

China’s debt burden

China, one of the world’s largest economies, is contending with with significant global debt levels. The country confronts a formidable challenge in its real estate market, burdened by a towering mountain of debt. Additionally, China is experiencing low productivity due to an ageing population.

“Everybody knows it has been making headlines, that there are real estate and property challenges in China that call for a very significant restructuring. From the viewpoint of public finances, that affects local public finances. And so a reconsideration of the fiscal relations inside China’s public administration is a very important priority,” Gaspar said.

sovereign debt

Regional report

The IMF published its report on Thursday, focusing on the economic prospects of the region and providing insights into the anticipated growth of the regional economy.

Based on the Global Economic Outlook report released by the Fund two days ago, all indicators suggest a further decline in the growth outlook of the region.

In commemoration of the meetings taking place on the African continent, a special report on Africa has been published, marking 50 years since the continent’s previous gathering in Kenya.

The special report focuses on economic developments across the African continent.

According to the report’s summary, “the continent’s vulnerability to natural disasters has been confirmed by recent events, including the devastating earthquake in Morocco, floods in Libya, and the impact of Typhoon Freddie in Malawi. These occurrences highlight the need for the continent to strengthen its resilience and response mechanisms, especially after enduring four years of crisis and another challenging year. In the short term, there are initial indications of improving prospects in numerous African countries, with declining inflation, recovering economic activity, and gradual reduction of financial imbalances. However, substantial challenges persist, and it is still premature to celebrate the outcomes.”

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