"This Year's Public Debt Matches Global GDP"... IMF Urges "Do Not Stop Fiscal Spending"

Global Public Debt at 98.7% of GDP This Year, Up 15 Percentage Points in One Year
Fiscal Deficit Also Soars from 3.9% Last Year to 12.7% This Year
Advanced Countries See Even Larger Increase to 14.4%
Emphasis on Additional Fiscal Support Amid Prolonged COVID-19... "Don't Pull the Plug Too Early"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The International Monetary Fund (IMF) has forecast that due to the impact of the novel coronavirus disease (COVID-19), global public debt this year will approach 100% of the world's gross domestic product (GDP), marking an all-time high. This means that the amount borrowed by governments worldwide will increase to a level comparable to the size of GDP. Despite massive fiscal deficits, the IMF emphasized that economic recovery is still far off and that fiscal spending should not be halted in order to boost it.

In a Fiscal Monitor report released on the 14th (local time), the IMF stated that the global public debt ratio will reach 98.7% of GDP this year, the highest ever recorded. Global public debt first rose to the 80% range in 2016 and reached 83% last year. It is expected to increase by more than 15 percentage points in just one year. In 2022, it is projected to reach 100.3%, meaning the world will have to bear debt exceeding GDP. The IMF explained, "The scale of fiscal spending by governments worldwide to mitigate the shock caused by COVID-19 amounts to $12 trillion (approximately 13,764 trillion won)," adding, "Fiscal policies and a sharp decline in tax revenues will push debt levels to record highs."

In particular, the public debt ratio of advanced economies, which implemented large-scale economic stimulus measures, is expected to reach 125.5% this year. This surpasses the 124% recorded in 1946, just after World War II, marking an all-time high. Emerging economies will also see unprecedented levels.

Due to expanded fiscal spending, the global fiscal deficit is expected to reach 12.7% of GDP this year. This ratio was 3.9% last year but is projected to increase by about 9 percentage points in one year. Especially, the fiscal deficit of advanced economies this year is expected to be 14.4% of GDP, higher than that of emerging economies (10.7%) and low-income countries (6.2%). The United States exceeded the advanced economies' average significantly at 18.7%.

South Korea's public debt ratio is forecasted to be 48.4% of GDP this year. This is an increase of about 7 percentage points from 41.9% last year, and it is expected to rise to the 50% range next year and the 60% range in 2024. The fiscal deficit ratio is estimated to be about 3.2% of GDP this year. It is expected to decrease to 2.3% next year and then maintain the 2% range thereafter.

Although the debt burden of governments worldwide is expanding in this way, the IMF stressed that additional fiscal support must be provided. Although fiscal capacity has decreased, the prolonged COVID-19 crisis means unemployment remains high and companies are struggling, so support is necessary to endure this.

Kristalina Georgieva, IMF Managing Director, said at a press conference held that day, "Pulling the plug too early risks causing serious damage," emphasizing the need to maintain fiscal spending. She stressed, "Sustained economic recovery is only possible if the pandemic is defeated everywhere," and added, "It is essential to strengthen necessary health measures and increase fiscal and monetary support for households and businesses."

The IMF rebutted concerns about the growing fiscal burden in various countries. The IMF highlighted that the global fiscal deficit will approach 4.5% of GDP in 2025, close to the pre-COVID-19 level of 3.9%. The report stated, "Lower interest costs have enabled governments to bear more debt burden." Victor Gaspar, IMF Fiscal Affairs Director, told foreign media, "We expect the deficit ratio to decrease without spending cuts or tax increases."