Global public debt will pass US$100 trillion ($100 trillion) by the end of this year. The International Monetary Fund (IMF) warned about this on Tuesday. According to the Washington-based lender, the increase in government debt is mainly driven by the United States and China.
A debt of 100 trillion dollars – equivalent to around 92 trillion euros – corresponds to 93 percent of the world’s gross domestic product (GDP). Without drastic measures, global debt levels are expected to rise to 100 percent of GDP by 2030.
Moreover, “there are good reasons to believe that the situation is worse than expected,” the IMF says. “We know from experience that debt forecasts are usually too optimistic, either because governments estimate expected economic growth too optimistically or because budgetary reforms are not fully implemented.”
USA and China
The IMF does qualify that public debt is expected to stabilize or decrease in two-thirds of countries, but in a number of large countries, led by the United States and China, it will only increase. Countries whose public debt is not expected to stabilize in the coming years account for more than half of global debt and about two-thirds of global GDP, according to the fund.
“Current fiscal adjustment plans fall far short of ensuring that debt is highly likely to be stabilized or reduced,” the IMF warns. According to the institution, a budgetary effort of 3.8 percent of GDP per year is needed in the coming years, while current savings plans average 1 percent of GDP per year.
At the same time, the International Monetary Fund warns that cuts should be considered carefully because they can affect economic growth and hit vulnerable groups in society, creating more inequality.