According to the IMF, public debt could exceed 117% of GDP by 2027 in an especially adverse scenario, if revenue and economic output decline beyond current projections, due to higher tariffs and weaker growth prospects. Such a debt level would represent the highest since World War II.
In 2020, global debt surged to 98.9% of GDP, driven primarily by substantial borrowing by governments to mitigate the impacts of the COVID-19 pandemic and the rapid contraction of economic activity. Despite a ten percentage-point reduction in the following two years, debt is now back on an upward trajectory, with the latest forecast indicating an accelerated growth rate.
The IMF notes that the global economy faces increased uncertainties, fueled by major tariff decisions by the U.S. and countermeasures that other countries may implement. "These developments exacerbate global economic prospects and increase risks," the report states, emphasizing that governments are under increasing pressure to balance budgets strained by rising defense expenditures, social support obligations, and debt servicing.
The IMF projects that government fiscal deficits will reach 5.1% of GDP by 2025, slightly above the 5% forecast for 2024 but significantly lower than the 9.5% recorded in 2020. While global GDP is expected to grow by 2.8% this year, the overall economic outlook remains cautious, as the impact of higher tariffs is expected to dampen growth.
The increase in debt is most prominent in the world's largest economies. According to Vitor Gaspar, Director of Fiscal Affairs at the IMF, one-third of the Fund’s member countries are experiencing faster debt accumulation compared to pre-pandemic levels, and these countries account for 80% of global GDP.
Rising fiscal pressures are expected to lead to higher social expenditures, particularly in nations affected by trade disruptions. Moreover, the decline in development aid from the U.S. and other wealthier countries will further strain the financial conditions of developing nations.
U.S. Improvement – Temporarily
The IMF projects a slight improvement in the U.S. fiscal deficit over the next two years, forecasting it will reach 6.5% of GDP in 2025 and 5.5% in 2026, down from 7.3% in 2024. This improvement is attributed to a combination of higher tariff revenues from recently announced measures and continued economic growth in the U.S.
"The U.S. economy has performed strongly in recent years, which is benefiting the budget. It helps the U.S., and it helps the global economy," said Gaspar.
However, this forecast assumes that the tax cuts passed by Republicans in 2017 will expire as planned at the end of this year. The Trump administration, however, seeks to extend these cuts, with experts estimating that doing so would add approximately $4 trillion to the U.S. debt over the next decade without any offsetting measures.
China’s fiscal deficit is projected to increase to 8.6% of GDP in 2025, up from 7.3% in 2024, reaching 8.5% by 2026.
Despite rising debt pressures, the IMF continues to advise governments to prioritize debt reduction to build fiscal buffers that can absorb future economic shocks. This will require a delicate balance.
"Countries with limited fiscal space should implement gradual and credible stabilization plans and allow automatic stabilizers, such as unemployment benefits, to function effectively," the IMF recommends. "Any new spending needs should be offset by reductions in other areas of expenditure or by generating new revenues."
