The IMF forecasts that global public debt will exceed 93% of GDP this year and grow by one percentage point in annual terms over the medium term to reach 100% of GDP by the end of the decade.

The IMF’s latest fiscal report published this October, “The Climate Crossover: Fiscal Policies in the Face of Global Warming“, forecasts that global public debt will increase by one percentage point of GDP each year over the medium term, adding that at the projected rate “global debt will reach 100% of GDP by the end of the decade”.

This fiscal deficit has been spurred by the growth of debt in major economies, especially the US, which according to the report will reach 123.3 per cent of GDP this year and 126.9 per cent by 2024. In turn, the debt of the Chinese economy is expected to grow to 83% of GDP in 2023, 87% in 2024 and to exceed 100% in 2027. As for this year, the IMF estimates that global public debt will exceed 93% of GDP.

Vitor Gaspar, director of the IMF’s Fiscal Affairs Department, explained that balancing public finances is becoming increasingly difficult for many countries because of growing public spending leading to large deficits, high debt linked to rising interest rates and political resistance to raising taxes in the face of an inflation-hit population.

On the other hand, it is important to note that reducing the debt burden would create fiscal space for new investment, which would help to boost economic growth in the coming years. IMF financial analysts stress the need for international cooperation on taxation, including carbon credits, to alleviate pressures on public finance.

The debt crisis and the climate crisis

Rising deficits, generated when expenditures are higher than revenues, mean more debt for each country, which causes each nation to assign a greater proportion of its revenues to cover these obligations, raising taxes or sacrificing social investment.

This affects particularly low-income countries vulnerable to climate change, with 40 countries at moderate or high risk of debt distress. A recent UN report warned of the need to improve access to finance for vulnerable countries, on terms that ensure both debt sustainability and long-term development needs.

These countries would need 417 billion euros of additional financing over the period 2022-26 to resume and accelerate the convergence of their incomes with those of more advanced economies. The IMF has been working within its policy frameworks to help its members deal with debt problems, but sometimes the cure can be worse than the disease.

International humanitarian organisations such as ActionAid are calling on financial institutions to cancel the debt of countries most vulnerable to climate change and to carry out “radical reform” of global debt management to “end this double crisis”.

In this context, they criticise the austerity policies imposed by the IMF, which undermine health, education and development in the poorest countries. Yet this vicious circle of debt is no longer limited to developing countries but is also affecting Western economies.

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