The world economy is estimated to owe as much as it earns by the end of this decade as global public debt is expected to hit 100% of global GDP by 2030.
The IMF says the global economy is heading toward a dangerous tipping point if nothing drastic is done to address the situation. This looming debt crisis is anticipated to be worse than the levels recorded during the peak of the COVID-19 pandemic.
This revelation was made by the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, during an address at the IMF Conference on Public Debt Transparency.
She warned that without urgent global action, the surging public debt could spiral into an economic catastrophe, particularly for emerging markets and developing economies such as Ghana.
The situation could be further exacerbated by the current uncertainty surrounding the world’s trade, as the anticipated fiscal trade-offs will become more complicated.
“Global public debt is expected to approach 100 percent of global GDP by the end of the decade. In other words, we would owe as much as we generate in one year. And this is worse than what we had during the pandemic,” the Managing Director of the IMF remarked.
She further indicated this is not a problem for only developing and emerging economies, but developed economies as well. However, he was quick to add that the impact on developing economies is expected to be dire.
“This is a problem everywhere in countries rich and poor, but it is particularly painful for emerging markets and developing economies, where the mounting cost of servicing debts is squeezing their ability to make investments and to respond to shocks,” she added.
For countries like Ghana, where debt servicing has already consumed significant portions of public revenue, the outlook is especially bleak. With debt repayments squeezing fiscal space, governments face tough choices between paying creditors and funding essential services such as healthcare, education, and infrastructure.
After Ghana defaulted on its external debts in 2022, the country has undergone a painful domestic and external debt restructuring process under the IMF-supported Extended Credit Facility. Although the economy is on a path of recovery, the broader trend of rising global interest rates and declining concessional financing threaten to reverse these gains.
To mitigate this looming global debt crisis, Kristalina Georgieva touted the IMF’s growing efforts to reform the global debt architecture. She pointed to the establishment of the Global Sovereign Debt Roundtable, an inclusive platform that brings together debtors and creditors, both public and private, to improve coordination and speed up debt restructurings.
The Fund is also pushing for greater transparency in sovereign debt contracts, better legal frameworks, and more inclusive dialogue between nations to address what Georgieva described as “a fundamental mismatch between growing development needs and shrinking fiscal space.”
The experts say if current trends continue unchecked, debt-fueled vulnerabilities could trigger another global financial crisis, with developing economies absorbing the heaviest blows.
