Global public debt could increase to 100 percent of global gross domestic product by the end of the decade if current trends continue, according to projections in the IMF’s latest Fiscal Monitor. The rising ratio of public debt to GDP reflects renewed economic pressures as well as the consequences of pandemic-related fiscal support.
This trend raises fresh concerns about long-term fiscal sustainability as many countries face rising budget challenges, write the IMF’s Era Dabla-Norris and Davide Furceri in a new blog.
A new Chart of the Week shows that about a third of countries, accounting for 80 percent of global GDP, have public debt that’s both higher than it was before the pandemic and rising at a faster pace. More than two-thirds of the 175 economies in the study now have heavier public debt burdens than before COVID spread in 2020.
Public debt’s evolution over the past five years diverges widely across countries, which means fiscal policy must vary in line with country‑specific factors and circumstances. However, given the uncertain times that may lie ahead amid high trade policy tensions, countries everywhere will need much greater resilience, the authors say.
Federal Debt how it got so big and what should come next
Paul Krugman of Feb 23, 2025
In a New York Times op-ed on Thursday, the Nobel laureate wrote that while $34 trillion is a record, debt as a share of GDP roughly matches levels seen at the end of World War II and is well below Japan’s current debt burden as well as the U.K.’s postwar level, neither of which triggered a debt crisis.
Most historical examples of debt crises took place in countries that borrowed in another country’s currency, he added.
To be sure, debt has been soaring for decades. But those worried about U.S. debt levels today note that while it surged during the pandemic emergency when the federal government sought to prop up the economy, debt has continued to pile up without a comparable emergency, not to mention a global calamity on the scale of World War II.
Meanwhile, the trajectory of deficits and debt in the coming decades is spooking investors and policymakers more than the current levels.
Krugman pointed out that unlike individuals, governments don’t have to pay off all their debt.
“How did we pay off the debt from World War II? We didn’t,” he wrote. “Federal debt when John F. Kennedy took office was slightly higher than it had been in 1946. But debt as a percentage of GDP was way down, thanks to growth and inflation.
Of course, the U.S. must still keep up with interest payments and maturing Treasury bonds, and the cost of servicing all that debt expense is expected to exceed defense spending this year.
How to fix U.S. debt
But in Krugman’s view, the key is stabilizing debt as a share of GDP rather than paying it all down, and he highlighted a recent study from the left-leaning Center for American Progress that estimates the U.S. needs to hike taxes or reduce spending by 2.1% of GDP to achieve that.
“That isn’t a big number!” he added.
The tax revenue that the U.S. government collects as a share of GDP is smaller than what other wealthy countries collect, and increasing it enough to stabilize debt isn’t likely to hurt growth, Krugman said.
Since the economics of stabilizing the debt are relatively straightforward, the main obstacle is politics, he explained.
“Given the political will, we could resolve debt concerns quite easily,” he wrote. “To the extent that debt is a problem, that’s a reflection of political dysfunction, mainly the radicalization of the G.O.P. That radicalization deeply worries me for several reasons, starting with the fate of democracy, and federal debt is nowhere near the top of the list.”
Posted by gandatmadi46@yahoo.com