The article indicates that global government debt increased to nearly 94% of GDP last year and is projected to exceed 100% by 2029, primarily because of significant deficits in countries like the U.S., China, and Japan.
Specifically, the U.S. is experiencing a government deficit of 7-8% of GDP despite operating near full capacity and lacks a plan for debt consolidation. Current fiscal policy, influenced by President Donald Trump’s “One Big Beautiful Bill,” risks driving national debt to 142% of GDP by 2031.
IMF’s Fiscal Affairs Director Rodrigo Valdés emphasized the need for Washington to implement a “credible” plan to reduce the deficit by 4 percentage points at a press briefing.
As debt increases, so does the cost of interest, forcing governments to allocate fewer tax revenues towards critical areas like health, education, and pensions. This issue is exacerbated by central banks halting large-scale bond purchases, a practice previously used to support the economy during the 2008 crash and Covid pandemic, with today’s bond buyers demanding adequate risk compensation due to inflation.
The IMF also expressed concern that some European governments are bypassing borrowing limits to finance increased defense spending, complicating traditional spending priorities.
Valdés highlighted the potential for government debt crises despite current market stability. He noted that both the U.S. and Europe are increasingly reliant on risk-averse investors, such as hedge funds, to manage their growing debt loads, unlike Asian countries which rely more on domestic long-term investors.
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