At Extreme Investor Network, we bring you the latest insights and analysis on the global economy. In a recent report, the International Monetary Fund (IMF) issued a warning about the escalating public debt levels worldwide, singling out alarming fiscal deficits in the U.S. and China.
According to the IMF’s annual Fiscal Monitor report, global public debt is projected to surpass $100 trillion by the end of 2024, with a forecasted global public debt to GDP ratio of 100% by the end of the decade. The U.S. and China play a significant role in driving up these debt levels, with the IMF noting that excluding these two countries would result in a 20% drop in the global public debt to GDP ratio.
Vitor Gaspar, the director of fiscal affairs at the IMF, expressed concerns that public debt may actually be worse than officially reported, citing governments’ tendency to underestimate debt levels due to an optimism bias. Governments are currently facing a “fiscal policy trilemma,” needing to balance increased spending for security and growth with resistance to higher taxation as public debt becomes less sustainable.
The report also highlights the challenges faced by developing countries in sub-Saharan Africa, where the need for increased spending to alleviate poverty clashes with limited tax capabilities and tighter financing conditions. Unsustainable debt levels not only put countries’ markets at risk of a sudden sell-off but also pose a spillover effect on other economies, resulting in higher borrowing costs.
In the U.S., the Treasury Department recently announced a budget deficit of $1.833 trillion, the highest level seen outside of the pandemic era. With growing concerns about the country’s fiscal health, the U.S. has grappled with government shutdowns and contentious debates over funding bills.
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