IMF said the tariff pressure to encourage global public debt through the level of pandemic
The economic pressure of the steep new US tariffs will encourage global public debt above the Pandemic era level up to almost 100% of the global GDP at the end of this decade as a slower growth and the government budget, the international monetary fund said.
IMF’s latest fiscal monitor projects that global public debt will grow 2.8 percentage points to 95.1% from global GDP in 2025. It is said that the increase in the increase is likely to continue, reaching 99.6% of global GDP in 2030.
Global public debt culminated in 2020 at 98.9% of GDP when the government borrowed a lot for help and output COVID-19 shrank. Debt fell 10 points percentage in two years.
But it has risen again and the latest predictions show it faster.
“Announcement of the main tariff by the United States, overcoming by other countries, and a very high level of policy uncertainty, contributing to worsening prospects and increased risk,” IMF said in the report.
He added that this made the government with a more difficult exchange because their budget was expanded by the need for higher defense expenses, demands for more social support and rising debt service costs that could grow with more inflationary pressure.
The annual fiscal deficit of the government is estimated to have an average of 5.1% of GDP in 2025, compared to 5.0% in 2024, 3.7% in 2022 and 9.5% in 2020, according to the report.
Slower growth, more debt
The budget view is based on the “estimated reference” of the IMF for the growth of Global GDP 2.8% this year in the latest world economic prospects, which includes the development of tariffs until April 4. Economic views, as well as fiscal views, will deteriorate if the steeper tariffs from President Donald Trump and measurement of kick returns.
The level of debt can rise above 117% in 2027 – estimated levels in the scenario which is very detrimental – “If income and decline in economic output are more significant than the current estimate due to increased tariffs and weakened growth prospects.”
Debt at that level will represent the highest part of GDP since the second world war, said the IMF.
Most of the debt growth was concentrated in a larger economy, Director of Fiscal Affairs of IMF Vitor Gaspar told Reuters. About a third of 191 IMF member countries now have debts that grow faster than before Pandemic, but they form about 80% of Global GDP, he added.
Increased pressure can encourage increased demands for social expenditure, especially in countries that are vulnerable to severe disturbances from trade shocks, which can encourage higher expenses, the report said.
Adding difficulties is a setback in development assistance by the US and other rich countries, continuing the trend in recent years, “and that means that these countries will face trade-offs that are even more striking than what should have happened,” Gaspar said.
As improvement-for now
IMF estimates are slightly improved for the US annual budget deficit over the next two years to 6.5% of GDP for 2025 and 5.5% for 2026, compared to 7.3% for 2024. This is due to a combination of an increase in the tariff collection based on announced steps and the growth of US output.
“So the US economic performance has been strong in recent years, and that helps the budget. This helps in the US, helping everywhere,” Gaspar said.
But the estimated AS assumes that the Republican tax deduction passed in 2017 ended at the end of the year according to schedule. Trump’s government wants to extend it, which according to budget experts will add around $ 4 trillion for US debt for a decade without offset.
The Chinese fiscal deficit is expected to grow sharply in 2025, to 8.6% of GDP from 7.3% in 2024, settled at 8.5% in 2026. Economic stimulus expenditure was quoted by the IMF as a reason that the estimated Chinese growth was held at 4%, some balanced the main output of the tariff.
Apart from increasing debt pressure, the IMF doubles its suggestions to countries to prioritize the reduction in public debt to help build fiscal buffers to overcome future economic shocks, which will require complicated balance of policy.
“Countries with limited space in the government budget must implement a gradual and credible consolidation plan and allow automatic stabilizers, such as unemployment allowances, to work effectively,” IMF said. “Every new expenditure needs must be balanced with cutting expenses in other places or new incomes.”
Source: Reuters
