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Global public debt will exceed $100 trillion this year for the first time, and will likely continue to rise from there.
A new International Monetary Fund report showed that government borrowing will reach 93% of global GDP by the end of the year and near 100% by 2030 — exceeding a pandemic-era peak of 99%, and 10 percentage points up from 2019.
The report comes shortly before a US election in which both candidates’ policy promises could add trillions to Washington’s already enormous debt burden, although most economists agree Republican Donald Trump’s plans would add significantly more than Democratic candidate Vice President Kamala Harris.
Other countries also have a growing debt pile, with the IMF warning: “Postponing adjustment will only mean that a larger correction is needed eventually.”
SIGNALS
World governments will have to make ‘hard choices’
Governments’ rising debt burden will “ultimately exact a heavy toll on their populations,” threatening the standard of living even in rich economies, CNN noted. Meanwhile, many political leaders have avoided the issue in a year of global elections, with some — as in the US — promising measures that could ultimately raise inflation or even trigger financial catastrophe. The problem is “more than a medium-term concern,” an executive at asset manager Vanguard said. Governments will eventually have to make “hard choices” and potentially have to resort to “painful” adjustments, like tax increases, other experts told the outlet. Such measures could spark more internal conflict: In countries working toward lowering debt, like Germany, infighting over debt limits threatens to break the governing coalition.
US presidential candidates’ proposals will likely raise government debt
The IMF’s report comes as the United States faces an election where both candidates have campaigned on tax plans that will cost the country, even as the deficit — the gap between government spending and revenue — stands at 6.5% of GDP, Reuters noted. Donald Trump’s tax plans are giving the Republican Party a “headache,” Semafor’s Joseph Zeballos-Roig and Burgess Everett reported. His proposals may cost about $7.5 trillion over a decade, according to one think tank’s estimate — Vice President Kamala Harris’ proposals would cost about half as much, the think tank found. “It does become a math problem, and it becomes an economic problem,” a Louisiana senator said. “Am I for reducing taxes? Sure. But you can’t consider it just in a vacuum.”
This decade may be remembered as the ‘Tepid Twenties’
Besides growing debt, the global economy is facing a number of challenges, including lower-than-average growth, inflation that is “not fully defeated,” and exhausted fiscal buffers, the International Monetary Fund’s managing director told the Atlantic Council in April. This decade may be remembered in history as the “Tepid Twenties,” she warned, unless countries head toward a course correction — including adopting policies that foster productivity, with an eye for green and digital transformations. When it comes to debt, experts agree that wealthier countries should work together with newer creditors, like China and the private sector, to strike debt restructuring deals and avoid a deeper crisis, a journalist wrote in Al Jazeera.