IMF: Global public debt expected to hit $100 trillion by year-end

The International Monetary Fund (IMF) has issued a dire warning about the global public debt crisis, with expectations that it will reach $100 trillion by the end of the year. Era Dabla-Norris, Deputy Director at the IMF Fiscal Affairs Department, spoke with CNBC Africa to discuss the severity of the situation. Dabla-Norris highlighted that global public debt currently stands at 93% of GDP and is projected to rise to 100% of GDP by the end of the decade. She raised concerns that the actual debt levels could be even worse than projected due to various factors such as optimistic growth prospects, unaccounted spending pressures for climate transition and population aging, and hidden debt in emerging markets. The IMF estimates that global debt could be 20 percentage points higher than projected in a negative scenario. This alarming landscape of debt risk calls for immediate action and a strategic pivot to fiscal policy. Dabla-Norris emphasized the need for countries to focus on rebuilding fiscal buffers and implementing reforms to address high and rising debt levels. She pointed out that countries like the US, China, France, the UK, and South Africa are among those facing significant challenges in stabilizing their debt. While some countries have room to stabilize debt, they still face constraints in dealing with future shocks. The uncertain global economic environment and potential spillover effects from systemically important economies like the US and China pose additional risks to global debt sustainability. Dabla-Norris stressed the importance of countries putting their public finances in order to mitigate these risks. She highlighted the need for countries to start implementing plans to reduce debt through a growth-friendly and people-focused approach to avoid negative impacts on output and inequality. In terms of fiscal measures, she recommended improving the quality and efficiency of public spending, mobilizing domestic revenues, and enhancing governance and fiscal frameworks to build trust with taxpayers. Dabla-Norris noted that the speed and design of fiscal adjustments should be tailored to each country's context to avoid negative consequences on growth and inequality. While a more front-loaded adjustment may be necessary for countries with high and rising debt, it should be done in a well-planned and credible manner. The IMF's warning serves as a wake-up call for countries to take decisive action to address the growing public debt crisis and ensure long-term fiscal sustainability.