The world is drowning in public debt. If, as in 2023, it should represent 93% of global GDP this year, it continues to increase and should reach 100,000 billion dollars at the end of 2024.
These forecasts, revealed on the occasion of the publication of the IMF’s public finance monitoring report (Fiscal monitor), worry the financial institution which predicts a ratio of 100% by the end of the decade. For comparison, the private debt of households and private non-financial companies represented, at the end of 2023, 146% of global GDP, according to data from the institution.
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« There are good reasons to believe that the situation is even worse than expected », underlined The Dabla-Norris eradeputy director of the budgetary affairs department at the IMF, during an online press conference.
« Experience reminds us that debt projections tend to be too optimistic, either because governments are so optimistic about their growth forecasts or because budgetary reforms are never fully realized. »
If States have already announced budgetary adjustments, they would not necessarily stabilize the public debt and even less reduce it, even if they were fully implemented.
China and the United States see their debt continue to increase
This is due to the fact that some of the major economies, first and foremost the United States and China, see their debt continue to increase and show no sign of reversing the curve. In order to allow a real reduction in public debt, an adjustment of 3.8% of GDP would be necessary each year by the end of the decade, compared to 1% envisaged so far. But a significant reduction in public spending, poorly calibrated, could have a major impact on the growth of countries, leading to an increase in inequalities and an increase in the debt ratio.
Global debt fell in 2022, but remains higher than before the pandemic
The IMF has repeatedly recalled the need for States to rebuild budgetary margins, undermined by the succession of crises since the Covid-19 pandemic, precisely to be able to cope with those to come. At the same time, it recognizes the need for States to invest massively in order to fight against global warming and adapt societies to the already visible consequences that it causes.
The fight against extreme poverty is in decline
But the rise in interest rates over the past three years has damaged the public finances of many countries by increasing the cost of their borrowing. Thus, in a report published on Sunday, the Central Bank is concerned to see the fight against extreme poverty in countries facing a record debt rate since 2006, slipping back at a time when needs are greater than ever. The 26 countries studied face an average debt rate corresponding to 72% of GDP, increasing by nine percentage points in 2023 and mobilize more than 10% of their tax revenues for interest repayments.
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Those who are the poorest have particularly suffered from the pandemic, with a drop of up to 14% in their GDP per capita between 2020 and 2024, even though they would have to invest the equivalent of 8% of their GDP per year to achieve their development objectives, underlines the Bank.
« If these countries are to emerge from a chronic state of emergency and achieve essential development goals, they will need to accelerate their investments » to an unprecedented level and which they will not be able to reach alone, warned the Bank’s chief economist, Indermit Gill.
The Bank nevertheless emphasizes that poor States can also act on a certain number of levers, in particular by broadening their tax base in order to strengthen tax revenues but also improve the efficiency of public spending.
(With AFP)