The International Monetary Fund (IMF) has warned that global public debt could reach 100 per cent of world economic output by the end of the decade, as rising borrowing costs and expensive responses to energy shocks put government finances under increasing pressure.
It said countries must urgently strengthen their public finances, improve tax systems and replace broad fuel subsidies with targeted, temporary support for vulnerable households.
Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, hinted at this on Wednesday during a press briefing on the Fund’s Fiscal Monitor at the ongoing IMF/World Bank Annual Meetings.
Valdés said global economic activity had remained resilient, but government finances had deteriorated.
Despite stronger-than-expected growth forecasts, fiscal outcomes had worsened by about 0.4 percentage points of gross domestic product (GDP) compared with forecasts six months earlier.
Pinnacle Daily reports that GDP measures the total value of goods and services produced by an economy. Public debt relative to GDP indicates the size of government debt compared with the economy’s output.
READ ALSO:
- CPPE Urges FG to Turn Five-Year GDP High Into Jobs, Higher Incomes
- Nigeria’s GDP Hits 4.43%, But Industrial Sector Slows Sharply
- Nigeria, Africa Could Add 4% to GDP by Removing AI Barriers — IMF
- IMF Warns Nigeria Against Fuel Subsidy Return as Debt Costs Rise
The IMF said the fiscal cost of measures used by countries to suppress the effects of the 2026 energy shock was about 0.5 per cent of global GDP.
Such measures include keeping fuel prices artificially low instead of allowing them to reflect higher global costs.
Valdés said broad fuel subsidies were costly and often regressive, meaning they could disproportionately benefit higher-income consumers who use more fuel.
“For a typical country in the world, subsidising zero or full and for full, I mean not letting the price move at all after the shock- has cost this year between one and one and a half per cent of GDP,” he said.
He urged governments to use targeted assistance, including support for vulnerable households and transport costs, instead of subsidising fuel for everyone.
The Fund also warned that rising interest rates would make it harder for governments to stabilise debt.
As existing debt is refinanced over time, higher borrowing costs gradually increase the amount governments must pay in interest, leaving less money for essential services and investment.
Valdés said the situation required more urgent action because higher borrowing costs, previously a risk, had now materialised.
“The sense of urgency needs to be understood differently,” he said, adding that countries should act before financial markets force them to make adjustments.
The IMF recommended that countries with high debt or significant fiscal risks begin reducing budget deficits under credible plans.
It also called for stronger institutions, transparent fiscal frameworks and more efficient public spending.
On taxation, the Fund said governments could increase revenue while supporting growth by removing tax rules that discourage investment, production and employment.
Simplifying value-added tax systems, reviewing exemptions and strengthening tax administration could improve compliance and reduce economic distortions.
Davide Furceri, Division Chief in the IMF’s Fiscal Affairs Department, said reforms to tax administration had generated almost two per cent of GDP in additional revenue in some cases.
The Fund’s Fiscal Monitor analysis also estimated that reducing tax distortions towards the level of better-performing countries could increase income per person by about 3.5 per cent within a few years.
Valdés said the goal was to design tax systems that raise sufficient revenue without unnecessarily holding back economic activity.
The IMF cautioned that countries faced different fiscal conditions and should tailor their responses accordingly.
However, it said governments could no longer delay action as higher interest payments, energy shocks and competing spending demands narrow their room to respond to future crises.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X