IMF says tariff pressures to push public debt past Covid levels

RTÉ News​

23-04-2025

Economic pressures from steep new US tariffs will push global public debt above pandemic-era levels to nearly 100% of global GDP by the end of the decade as slower growth and trade strain government budgets, the International Monetary Fund said today.
The IMF's latest Fiscal Monitor projected that global public debt will grow 2.8 percentage points to 95.1% of global GDP in 2025. It said the upward trend was likely to continue, reaching 99.6% of global GDP by 2030.
Global public debt peaked in 2020 at 98.9% of GDP as governments borrowed heavily for Covid-19 relief and output shrank. Debt fell 10 percentage points within two years.
But it has been edging back up and the latest forecast showed it accelerating.
"Major tariff announcements by the United States, countermeasures by other countries, and exceptionally high levels of policy uncertainty, are contributing to worsening prospects and heightened risks," the IMF said in the report.
It added that this leaves governments with more difficult trade-offs as their budgets are stretched by higher defense spending needs, demands for more social support and rising debt service costs that could grow with more inflationary pressures.
Governments' annual fiscal deficits are forecast to average 5.1% of GDP in 2025, compared to 5% in 2024, 3.7% in 2022 and 9.5% in 2020, according to the report.
The budget outlook is based on the IMF's "reference forecast" for 2.8% global GDP growth this year in its latest World Economic Outlook, which includes tariff developments up to April 4. The economic outlook, as well as the fiscal outlook, would worsen if steeper tariffs from President Donald Trump and retaliatory measures kick in.
Debt levels may rise above 117% by 2027 - the level forecast in a severely adverse scenario - "if revenues and economic output decline more significantly than current forecasts due to increased tariffs and weakened growth prospects."
Debt at that level would represent the highest share of GDP since World War Two, the IMF said.
Much of the debt growth is concentrated in larger economies, IMF Fiscal Affairs Director Vitor Gaspar told Reuters.
About one third of the IMF's 191 member countries now have debt growing at rates faster than before the pandemic, but they make up about 80% of global GDP, he added.
The rising pressures could prompt increasing demands for social spending, especially in countries vulnerable to severe disruptions from trade shocks, that could push spending higher, the report said.
Adding to difficulties is a pullback in development aid by the US and other wealthier countries, continuing a trend in recent years, "and that means that these countries will face even starker trade-offs than would otherwise be the case," Gaspar said.
The IMF forecasts a slight improvement to US annual budget deficits over the next two years to 6.5% of GDP for 2025 and 5.5% for 2026, compared to 7.3% for 2024. This was due to a combination of increased tariff collections based on announced measures as well as continued US output growth.
"So the performance of US economy has been strong in recent years, and that helps the budget. It helps in the US, it helps everywhere," Gaspar said.
But the US forecast assumed that Republican tax cuts passed in 2017 expire at the end of the year as scheduled. The Trump administration wants to extend them, which budget experts said would add some $4 trillion to US debt over a decade without offsets.
China's fiscal deficits are expected to grow sharply in 2025, to 8.6% of GDP from 7.3% in 2024, settling at 8.5% in 2026. Economic stimulus spending was cited by the IMF as a reason that China's 2025 growth forecast held at 4%, partly offsetting a major output drag from tariffs.
Despite the increase in debt pressures, the IMF doubled down on its advice to countries to prioritise public debt reductions to help build fiscal buffers to address future economic shocks, which will require a delicate policy balance.
"Countries with limited room in government budgets should implement gradual and credible consolidation plans and allow automatic stabilizers, like unemployment benefits, to work effectively," the IMF said.