IMF (International Monetary Fund) has raised the alarm about the skyrocketing debt levels held by government around the globe.
The IMF’s latest Fiscal Monitor Report says that global debt will surpass $100 trillion at the end of this year.
This is up from $97.4 trillion one year earlier, and the United States accounts for roughly half of this $3 trillion growth.
IMF estimates that government debt will reach 93% of the global GDP at the end of 2015 and approach 100% by 2030.
Report argues that countries must confront debt risk now. Interest rate changes give legislators the opportunity to tighten fiscal policy.
The economy is better prepared to handle the effects of tightening fiscal policy now that inflation has moderated and central banks have lowered their interest rates.
“Delaying is both risky and costly, since the correction required grows over time; experience has shown that high debt levels and lack of credibility fiscal plans may trigger negative market reactions, limiting room for maneuvering in times of turmoil.”
This report highlights that it is difficult to accurately identify all obligations of the government, and warns forecasts for debt are usually overly optimistic.
IMF’s “Debt at Risk” model indicates that, in an adverse scenario where the global debt is severely affected by tightening financial conditions or other factors such as unforeseen policy shifts, it could reach 115% of GPD within three years.
IMF predicts that government spending will actually increase despite the risks.
The IMF’s previous research shows that the fiscal discourse of politicians across all political parties has shifted to higher spending.
Due to the growing tensions in geopolitics, countries will have to spend more money to deal with issues such as aging and healthcare. They’ll also need to invest more for climate change adaptation and green transition.
In an earlier year, UN called for urgent reforms to the global financial system in response to concerns about the surging public deficit, which they referred to, as “a growing burden on the prosperity of the world.”
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IMF warns governments to increase spending as they prepare for a $100,000,000,000,000 global debt this year.
