Global debt has hit an earth-shattering $323 trillion in the third quarter of 2024. That’s $12 trillion more than where we started the year.
Over the last two decades, total global debt has tripled, putting today’s figure into perspective. Debt-to-GDP now sits at 326%, higher than pre-pandemic levels, and it’s not showing signs of slowing down.
Emerging markets are carrying $105 trillion of this debt or 245% of their GDP. These are near-record levels, leaving economies with limited breathing space to prioritize anything but survival. Debt payments are eating up money that should be spent on health, education, and infrastructure.
Poor countries, broken systems
Multilateral institutions are becoming the only lifeline for struggling nations, according to Indermit Gill, Chief Economist at the World Bank. “In highly indebted poor countries, multilateral development banks are now acting as a lender of last resort, a role they were not designed to serve,” he said.
He added that financial systems are so broken that money flows out of poor economies when they desperately need inflows to survive.
The situation is grim. Previous research from the IMF highlights how fiscal policy worldwide is skewing toward higher spending. Governments are under pressure to allocate more money to aging populations, healthcare, climate adaptation, and military spending—all while debt continues to climb.
Geopolitical tensions aren’t helping either, as defense and energy security demands pile on. But there’s more bad news: debt forecasts are notoriously wrong. The IMF’s historical data shows that debt-to-GDP ratios typically exceed projections by 10 percentage points within five years.
So, whatever projections are being made now? Take them with a grain of salt. The situation could easily be worse than what’s on paper. It actually almost always is.
The IMF’s Fiscal Monitor introduces a new “debt-at-risk” framework, aiming to provide a better picture of future debt outcomes. Spoiler alert: the risks are massive. If things go south—slower growth, fiscal policy failures, and rising uncertainty—global public debt could hit 115% of GDP within three years.
That’s 20 percentage points higher than current projections. Countries are also being squeezed by global factors like spillovers from U.S. policy instability, making it even harder to manage borrowing costs.
The hidden threat of unaccounted debt
Unaccounted debt, or unidentified liabilities, is another problem weighing down public finances. A deep dive into over 30 countries shows that 40% of these liabilities stem from state-owned enterprises and other fiscal risks.
On average, these hidden debts are between 1% and 1.5% of GDP but can spike during financial stress. This is a ticking time bomb for countries already struggling to manage their visible debts.
Here’s the real kicker: current fiscal adjustments aren’t even close to what’s needed. According to the IMF, countries are targeting an average adjustment of 1% of GDP over six years. To stabilize debt, they’d need to tighten fiscal policy by 3.8% of GDP.
That’s nearly four times the current plan. For economic giants like China and the U.S., the required effort is even larger. But unlike smaller countries, they have more tools and options at their disposal.
The real cost of fixing debt
Fixing debt won’t come cheap. Cutting public investment might seem like a quick solution, but it tanks long-term growth prospects. On the flip side, slashing social transfers leaves vulnerable populations hanging out to dry.
The IMF argues for a balanced approach, where countries focus on growth-friendly measures while safeguarding social safety nets.
Advanced economies are expected to reform entitlement programs and improve taxation systems. Emerging markets, meanwhile, have room to increase revenues by broadening tax bases and improving tax administration. But they also need to maintain public investments to support development goals.
Timing matters, too. Gradual fiscal adjustments are less painful and limit economic fallout, while abrupt moves can cause massive output losses—up to 40% more than gradual measures. Still, countries facing high debt distress may not have the luxury of time. They’ll need to front-load their adjustments to avoid immediate crises.
Governments also need to clean up their act. Stronger fiscal governance, better risk management, and transparent debt statistics are critical to rebuilding trust. Without these measures, public confidence in fiscal policy will continue to erode.
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