Global public debt: Global public finances have entered a dangerous phase. The IMF’s April 2026 Fiscal Monitor, titled Fiscal Policy under Pressure: High Debt, Rising Risks, says gross government debt worldwide rose to just under 94% of GDP in 2025 and is set to reach 100% by 2029. That would take the world back to a debt ratio last seen after World War II.
The Fund’s central warning is simple. The fiscal cushion has disappeared. A decade ago, governments had more than one percentage point of GDP in space between their current primary balances and the balances needed to stabilise debt. That margin has now almost vanished. This is not a cyclical accident. It is the result of permanent spending commitments, weaker revenue bases, and political reluctance to adjust before markets force the issue.
READ | Rising state debt: Welfare politics meets fiscal limits
The baseline is bad enough. The risk case is worse. The IMF says global debt-at-risk three years ahead is now close to 117% of GDP. That is the figure to watch, because debt crises usually arrive when growth disappoints, rates stay high, or markets suddenly decide that yesterday’s safe borrower is today’s risky one.
US and China drive global public debt
The two economies doing most to alter the global debt path are the United States and China. Their problems differ, but the effect is the same.
The United States is running a general government deficit of 7–8% of GDP while operating near full capacity. That is procyclical fiscal policy by another name. The IMF projects US gross debt at 142% of GDP by 2031. Its assessment of the One Big Beautiful Bill Act is blunt: the measure would widen the deficit, with no credible medium-term consolidation plan in sight.
China faces a different problem. Fiscal expansion to support domestic demand and fight deflation has pushed the overall deficit to nearly 8% of GDP. Without structural reform in taxation, social security and local government financing vehicles, China’s debt is projected to move towards 127% of GDP by 2031.
Japan, long treated as the exception that proved high debt could be managed, is now seeing record sovereign yields. That matters beyond Tokyo because Japanese investors remain central to global bond markets. In Europe, several EU members have invoked fiscal escape clauses to fund higher defence spending. The IMF’s point is that such spending is unlikely to be temporary. It will compete directly with ageing-related welfare commitments.
The Middle East conflict adds a new fiscal shock. The IMF links it to higher energy prices, tighter financial conditions, rising bond yields and pressure on emerging-market currencies. That matters most for low-income, energy-importing economies. It also matters for India. An oil shock worsens the current account, complicates inflation management, and reduces the fiscal room for subsidies or tax cuts.
Bond markets no longer offer comfort
The sharper part of the IMF analysis concerns the plumbing of sovereign debt markets. Central banks are reducing the bond portfolios accumulated after the pandemic. Private investors, including leveraged funds, have become more important buyers of government debt.
That changes the risk profile. Hedge funds now absorb large volumes of issuance through carry trades and basis trades. These trades work in calm markets. They can unwind quickly when volatility rises.
The old comfort around US Treasuries is also weaker. The “convenience yield” investors once paid to hold the world’s safest asset has declined. Higher US Treasury yields now transmit more directly to foreign bond markets. The damage is greatest for countries that depend on external financing.
The underlying arithmetic has also turned less friendly. When interest rates exceed growth rates, debt rises even before fresh spending is added. That is how a manageable debt ratio becomes a fiscal trap.
The shortening of debt maturities adds another risk. Governments that borrowed short to reduce immediate interest costs have increased exposure to shifts in funding conditions. This is cheap until it is not.
Fiscal adjustment cannot be deferred
The IMF’s policy advice differs by country group, but the message is common. Gradual adjustment is still possible, but the window is narrowing.
For advanced economies, the Fund wants concrete measures, not vague medium-term targets. In the United States, stabilising debt will require action on both revenue and entitlement spending. In Europe, defence commitments must be matched by actual expenditure reprioritisation, not accounting devices.
For emerging markets, the priorities are contingent liabilities, fuel subsidies and narrow tax bases. The IMF makes a useful point here. Better tax administration, digital compliance, fewer exemptions and stronger audit capacity can raise durable revenue without politically explosive rate increases.
For low-income developing countries, the squeeze is harsher. Interest payments are consuming historically high shares of revenue. Official development assistance is falling. External financing has become costlier. Domestic revenue mobilisation is no longer a reform slogan. It is the difference between solvency and serial crisis.
The IMF is not given to drama. Its reports usually balance candour with diplomatic caution. This one is less hedged. High debt, higher interest rates, rising defence and welfare commitments, and nervous bond markets leave governments with less room to postpone hard choices.
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, says countries that rebuild fiscal buffers in calm periods will be better placed to protect citizens when the next shock arrives. Those that do not will discover that fiscal space cannot be improvised.
That is the real lesson for New Delhi, Brussels, Nairobi and Washington. Fiscal reform is not bookkeeping. It is insurance against the next crisis. Governments that treat it as optional will find that markets do not.
Anjali PK and Shamna TC are Assistant Professors, Department of Economics, Christ University, Bengaluru.