Total public debt across the world will top $100 trillion (£77 trillion) for the first time by the end of this year, according to a stark forecast by the International Monetary Fund (IMF).
As Rachel Reeves struggles to make her Budget numbers add up, the global watchdog said governments must act now to prevent debt spiralling further out of control or risk having to take even more painful action in future.
Its projections see global debt reaching 93 per cent of gross domestic product (GDP) by the end of this year and 100 per cent by 2030.
Red planet: The International Monetary Fund’s projections see global debt reaching 93% of gross domestic product by the end of this year and 100% by 2030
But it highlighted the risk that the debt burden could surge even more quickly as governments face pressure to increase spending thanks to the ageing population, climate change, and rising defence budgets amid growing global tensions.
In a ‘severely adverse scenario’ it could hit 115 per cent in three years’ time, the IMF said.
Its report said debt has increased more rapidly in large countries such as the UK since the pandemic – when billions were splurged on saving lives and protecting jobs.
The IMF warned that delaying any move to tackle debt would be costly and mean the required ‘correction’ – through tax rises or spending cuts – would be even larger.
And it also made clear that there was a big risk in not tackling the problem early enough.
If jittery bond investors take fright that would mean countries find it hard to borrow money in the event of a crisis that requires more spending.
‘Country experiences suggest that high debt and the lack of credible plans for dealing with it can trigger adverse market reactions and leave little fiscal room for manoeuvre in the face of adverse shocks,’ the report said.
And the IMF chided indebted countries for failing to get to grips with the colossal scale of debt.
‘If public debt is higher than it looks, current fiscal efforts are likely smaller than needed,’ it said. The report comes as speculation grows that Reeves will tweak rules on bringing debt down in her debut Budget later this month.
That could unlock tens of billions of pounds more in borrowing to pay for much-needed investment. But some fear that by going too far, the Chancellor risks provoking the ire of bond markets.
Already, yields on ten-year UK gilts – the return expected by investors when lending to the Government – have climbed to pre-election levels.
Elsewhere, France has fallen foul of bond investors amid its chaotic political situation – with a minority administration appointed by President Emmanuel Macron, struggling to assert its authority over a parliament dominated by the far-Right and far-Left.
That has prompted yields on French bonds to climb above those issued by Spain, reversing the long-standing view of Paris’s public finances being a much safer bet than those in Madrid.
Last month, the government warned its 2024 deficit – the gap between spending going out and revenues going in – risked overshooting 6 per cent of GDP. That compares to a previous 5.1 per cent target.
In the UK, debt is hovering around 100 per cent of GDP. It reached £2.77 trillion this summer according to official data. In France it has climbed to 112 per cent or £2.69 trillion.
For the US, it is projected to top 120 per cent of GDP. Recent figures showed it had reached a staggering £27 trillion.
An independent forecast suggests both candidates in next month’s presidential election will add to the debt, with Donald Trump adding £5.7 trillion over ten years and Kamala Harris £2.7 trillion.
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