Global Public Debt

Global public debt is set to surpass USD 100 trillion this year, signalling urgent calls for stronger fiscal measures from major economies, according to a recent report from the International Monetary Fund (IMF).

What Is Global Public Debt?

• Global public debt refers to the total amount of money that governments around the world owe to creditors.
• This debt can include domestic and foreign loans, bonds, and other forms of borrowing. Public debt is usually expressed as a percentage of a country’s Gross Domestic Product (GDP), which measures the economic output of a nation.
• A rising public debt ratio can indicate that a country is borrowing more than it is producing, raising concerns about its long-term financial health.

Causes of Rising Global Public Debt

• COVID-19 Pandemic: The pandemic forced governments to implement expansive spending strategies to support their economies. This included financial aid for businesses, unemployment benefits, and healthcare spending, leading to increased borrowing.
• Economic Stimulus: Major economies, particularly the U.S. and China, have engaged in substantial fiscal stimulus plans to boost growth. This has contributed significantly to the rise in global debt levels.
• Inflation and Interest Rates: As inflationary pressures ease and central banks lower borrowing costs, governments have more incentive to borrow. However, the need for long-term fiscal sustainability remains pressing.
• Aging Populations and Security Issues: Challenges like an aging population and increasing security concerns further strain public finances, requiring governments to borrow more to meet these needs.

Impact of Rising Global Public Debt

• Economic Stability: High levels of public debt can jeopardize economic stability, making it more challenging for governments to respond to future crises. The IMF warns that without decisive action, future debt levels may exceed current projections, requiring significant fiscal adjustments.
• Government Bond Markets: Escalating borrowing levels have already led to sell-offs in government bond markets, raising borrowing costs for countries. This can create a cycle of increasing debt as governments struggle to finance their obligations.
• Fiscal Policies: The IMF has recommended that governments prioritize their spending, reform entitlements, and find new revenue sources to stabilize their finances. Delaying these necessary adjustments could lead to more severe economic challenges in the future.
• Vulnerable Households: As governments make fiscal adjustments, it is crucial to protect vulnerable households from the impacts of austerity measures. Well-designed fiscal policies can support economic growth while ensuring that the most affected populations receive assistance.