IMF Warns: Global Public Debt May Continue Rising in 2025, Urgent Fiscal Consolidation Needed
On April 23 local time, the International Monetary Fund (IMF) issued a stark warning in its latest *Fiscal Monitor* report: Against the backdrop of significantly heightened global economic uncertainty, public debt levels worldwide are on a sustained upward trajectory, necessitating urgent fiscal consolidation by governments to safeguard economic stability and sustainable growth.
In recent years, the global economic recovery has faced repeated setbacks, with intertwined challenges such as geopolitical conflicts, lingering pandemic effects, and climate change casting a growing shadow over economic prospects. In response, many countries have resorted to large-scale fiscal spending to mitigate crises and stimulate growth, becoming a primary driver of rising public debt.
IMF data reveals that the global public debt-to-GDP ratio surged sharply following the pandemic. Although it moderated slightly as the pandemic eased, new economic shocks have reignited the upward trend. By 2025, this ratio is projected to climb further, with high-debt countries facing particularly severe pressures. For instance, some emerging markets, grappling with capital outflows and exchange rate volatility, must simultaneously service heavy debt burdens and sustain basic economic operations, exacerbating fiscal strains.
The relentless rise in public debt looms like a sword of Damocles, posing multiple threats to global economic stability. Market trends suggest that elevated debt levels may trigger investor concerns over sovereign solvency, leading to credit rating downgrades. Such downgrades, in turn, could sharply increase government borrowing costs in international markets, creating a vicious cycle. Additionally, debt servicing may force governments to slash public spending or raise taxes, inevitably dampening domestic consumption and investment while stifling growth.
From a policy perspective, high debt constrains governments’ ability to deploy countercyclical fiscal measures during downturns. When recession risks emerge, excessive debt may leave policymakers with limited fiscal space to stimulate the economy effectively. Moreover, the spillover effects of global public debt could spark systemic financial risks, where one nation’s default might cascade into international market turmoil.
Sectoral impacts vary. In real estate—closely tied to government policies—high debt may reduce investments in affordable housing projects, while rising financing costs could push mortgage rates higher, suppressing demand. For financial institutions, large holdings of government bonds face depreciation risks, eroding asset quality and potentially triggering credit crunches that further strain the real economy.
The IMF underscores that governments must act swiftly to restore fiscal discipline. Priorities include optimizing expenditure structures by redirecting resources toward education, R&D, and infrastructure—areas vital for long-term growth—while eliminating inefficiencies. Concurrently, tax reforms to broaden bases and enhance collection efficiency can bolster revenues. Crucially, international policy coordination is needed to mitigate spillover effects and collectively address global economic challenges.
The relentless climb in global public debt has emerged as a defining challenge for the international economy. Only through coordinated and decisive fiscal consolidation can nations lay the groundwork for sustained stability and growth.
