Economic pressures for US tariffs will raise world public debt above the levels of pandemic to almost 100% of world GDP at the end of the decade, as the slowdown in growth and trade presses public budgets, the International Monetary Fund (IMF) said Wednesday.
According to the latest FMI fiscal monitor report, global public debt will grow 2.8 percentage points to 95.1% of the world GDP in 2025 and it is likely that the upward trend will continue to reach 99.6% of the world GDP in 2030.
The world public debt reached its maximum point in 2020, with 98.9% of GDP, because governments contracted large loans to alleviate the effects of COVID-19 and the contraction of production. The debt fell 10 percentage points in two years.
But it has risen again and, according to the latest forecasts, it is accelerating.
“The important tariff announcements of the United States, the countermeasures of other countries and the exceptionally high levels of political uncertainty contribute to worsen perspectives and to increase the risks,” says the IMF in its report.
He added that this leaves governments with more difficult compensation, since their budgets are forced by the highest needs of defense spending, the demands of more social support and the growing costs of the debt service, which could increase with more inflationary pressures.
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Tariff pressures will cause world public debt to exceed pandemic levels: IMF
According to the report, the annual fiscal deficits of governments are expected to reach an average of 5.1% of GDP in 2025, compared to 5.0% in 2024, 3.7% in 2022 and 9.5% in 2020.
The budgetary perspectives are based on the “reference forecast” of the IMF of a world GDP growth of 2.8% this year in its latest report perspectives of the world economy, which includes the evolution of tariffs until April 4. The economic perspectives, as well as the prosecutors, would worsen if more pronounced tariffs of President Donald Trump and retaliation measures come into force.
Debt levels could exceed 117% in 2027 – the level provided for in a severely adverse scenario – “if income and economic production decrease more significantly than current forecasts due to the increase in tariffs and weakening the growth prospects”.
The debt at that level would represent the greatest proportion of GDP since World War II, according to the IMF.
Much of the debt growth is concentrated in the largest economies, the Director of FMI tax matters, Vitor Gaspar, told Reuters. Around a third of the 191 IMF member countries now have a debt that grows at a faster rate than before the pandemic, but they represent about 80% of the world GDP, he added.
The growing pressures could cause an increase in social spending demands, especially in countries vulnerable to serious disturbances derived from commercial crises, which could raise the expense, according to the report.
To the difficulties the reduction of the aid to development by the United States and other richer countries is added, continuing the tendency of recent years, “which means that these countries will face even more hard compensation than the case would be,” said Gaspar.
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The IMF foresees a slight improvement in the annual budget deficits of the United States in the next two years, up to 6.5% of GDP by 2025 and 5.5% by 2026, compared to 7.3% of 2024. This was due to a combination of higher tariff collections based on the announced measures, as well as the continuous growth of US production.
On the other hand, China’s fiscal deficits are expected to grow sharply in 2025, to 8.6% of GDP from 7.3% in 2024, to establish themselves in 8.5% in 2026. The expense in economic stimulus was summoned by the IMF as one of the reasons why China’s growth forecast by 2025 remained at 4%, partly compensating for a significant ballast Tariff
With Reuters information
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