According to Fiscal Monitor October 2024, global public debt is expected to exceed $100 trillion, which is about 93% of global GDP, and could reach 100% of GDP by 2030. It translates into an additional 10 percentage points of since 2019. Under the “debt-at-risk” framework (the level of future debt in an extreme adverse scenario) is estimated to be nearly 20 percentage points of GDP higher three years ahead in the baseline projections. The framework shows how changes in economic, financial, and political conditions can shift the distribution of future debt-to-GDP ratios
The fiscal outlook of many countries might be worse than expected for three reasons: large spending pressures, optimism bias of debt projections, and sizable unidentified debt. Countries will need to increasingly spend more to cope with aging and healthcare; with the green transition and climate adaptation; and with defense and energy security, due to growing geopolitical tensions.
Debt will increase because of weaker growth, tighter financing conditions, fiscal slippages, and greater economic and policy uncertainty. The spillovers due to policy uncertainty in systematically important countries (such as the US) further complicate the situation. Unidentified debt when realized tends to increase public debt. Based on analysis of over 30 countries, the report states 40 percent of unidentified debt stems from contingent liabilities and fiscal risks governments face, of which most are related to losses in state-owned enterprises.
Unidentified debts build up emerge from extra-budgetary spending, institutional changes, arrears, and materialization of contingent liabilities and fiscal risks. Unidentified debt is the change in debt not explained by interest-growth differentials, budgetary deficits, or exchange rate movements. Historically, these tend to 1 to 1.5% of GDP on average but increase sharply during periods of financial stress.
The report recommends fiscal adjustments to contain debt risks, warning that current fiscal adjustments—on average, of 1 percent of GDP over six years by 2029—even if implemented in full, are not enough to significantly reduce or stabilize debt with a high probability. Tightening to the tune to 3.8% of GDP may be required to ensure debt stabilization.
It recommends countries to tackle debt risks with carefully designed fiscal policies that protect growth and vulnerable households. For advanced economies, advance entitlement reforms, reprioritize expenditures, and increase revenues where taxation is low is recommended. Emerging market and developing economies have greater potential to mobilize tax revenues—by broadening tax bases and enhancing revenue administration capacity—while strengthening social safety nets and safeguarding public investment to support long-term growth. Some countries with high risk of debt distress will need front-loaded adjustments.
Some of the recommendations include:
- Identifying the size of fiscal adjustment and designing its composition (expenditure rationalization but also protecting vulnerable households)
- Calibrating the pace of adjustment
- Building credibility by having MTFFs and modern PFM systems to anchor adjustment paths and reduce fiscal policy uncertainty. Governments need deliberate fiscal plans, framed within credible medium-term fiscal frameworks and modern public financial management systems to anchor their adjustment paths and reduce fiscal policy uncertainty. Strong independent fiscal oversight can reinforce government credibility.
- Strengthening fiscal governance by addressing contingent liabilities, including those associated with SOEs.
- Addressing debt distress by undertaking timely and adequate restructuring (for countries facing debt distress or unsustainable debt)
