By Atlantic Reports

Global public debt is projected to reach 100 per cent of gross domestic product (GDP) by 2029, the International Monetary Fund has warned, calling for early action to strengthen government finances.

Presenting its October 2026 Fiscal Monitor on Wednesday at the IMF and World Bank Annual Meetings in Bangkok, the Fund said global public debt rose to 94 per cent of GDP in 2025.

The projection concerns aggregate global debt relative to economic output. It does not mean every country will reach the same debt ratio, and it remains a forecast rather than a predetermined outcome.

Higher Borrowing Costs Squeeze Budgets

Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, said resilient economic activity had not produced a corresponding improvement in public finances.

He warned that governments faced a narrowing opportunity to make orderly adjustments before difficult market conditions forced more painful decisions.

According to Valdés, rising interest rates affect public budgets gradually as existing debts mature and governments refinance them at higher costs.

That process can increase interest payments over several years, leaving less room for other expenditure unless revenues rise or spending priorities change.

He said governments were also facing competing demands from healthcare, social programmes, defence and development investment.

Why Growth and Interest Rates Matter

Valdés highlighted the difference between borrowing costs and economic growth as a central factor in debt sustainability.

When interest rates on public debt exceed economic growth rates, stabilising debt relative to GDP becomes harder, particularly where governments continue spending more than they collect before interest payments are counted.

He said this relationship was becoming less favourable across advanced and emerging economies, increasing the risk of further debt accumulation.

Although the IMF expected fiscal balances to improve, Valdés cautioned that the projected adjustment was not guaranteed.

Revenue Reform Beyond Higher Tax Rates

IMF Fiscal Affairs Department Division Chief Furceri urged emerging and developing economies to broaden tax bases, remove inefficient exemptions, simplify procedures and strengthen administration.

He said governments could collect more revenue by improving compliance and addressing policy weaknesses without necessarily raising tax rates across the board.

Furceri cited research indicating that tax administration reforms in some countries had generated additional revenue approaching two per cent of GDP. That finding does not establish that every country could achieve the same result.

He also warned that complicated tax procedures could discourage investment and weaken the productivity of small and young businesses.

Protecting Essential Services

Alongside revenue measures and subsidy reform, Furceri called for more efficient public spending and protection of investment in education, healthcare and infrastructure.

He said social assistance should be directed towards people most in need.

For households, the consequences of debt pressures can emerge through taxes, service provision and reduced public investment. The IMF’s recommendations therefore place importance on both strengthening public finances and protecting essential spending.

The practical challenge for governments is to demonstrate that additional revenue and spending adjustments improve debt sustainability without placing disproportionate burdens on vulnerable people or undermining long-term growth.

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