IMF 'Fiscal Review Report'
US Government Debt to GDP at 122.1% This Year → 133.9% in 5 Years
Rising Interest Rates Cause Sharp Increase in Government Borrowing Costs Worldwide
The International Monetary Fund (IMF) has issued a warning that the rapid increase in national debt by the U.S. and Chinese governments is driving up global interest rates, potentially causing significant damage to the world economy. In particular, the chronic fiscal deficits in the U.S. and the resulting surge in government bond issuance are increasing borrowing burdens for other countries. This year, with elections scheduled in 88 countries, concerns are rising that governments’ popularity-driven 'money printing' policies could further widen fiscal deficits.
On the 17th (local time), the IMF released its 'Fiscal Monitor Report,' projecting that the U.S. government debt-to-GDP ratio will rise from 122.1% in 2023 to 133.9% in 2029. The Chinese government’s debt-to-GDP ratio is estimated to increase from 83.6% to 110.1% over the same period.
Due to the debt surge led by the U.S. and China, the global government debt-to-GDP ratio is expected to climb from 93.2% in 2023 to 98.8% in 2029. The UK and Italy are also analyzed to contribute to this debt increase.
If the current policy stance continues, the IMF forecasts that by around 2053?approximately 30 years from now?the U.S. government debt will have increased by about 70% of GDP, while China’s debt will more than double.
The IMF stated, "Large economies such as China, Italy, the UK, and the U.S. will drive the increase in debt," adding, "These countries must implement policy measures to address fundamental imbalances between revenues and expenditures."
It particularly pointed out that although many countries have reduced government debt relative to economic size since the COVID-19 pandemic, debt ratios in the U.S. and China have increased. The IMF noted that the U.S. faced a significant fiscal cliff in 2023, with government spending exceeding 8.8% of GDP?double the 4.1% in 2022. It also projected that the U.S. medium-term fiscal deficit will exceed 6% of GDP.
The problem is that the U.S. government's fiscal expansion is slowing the pace of inflation deceleration and pushing interest rates higher, thereby increasing borrowing costs for other governments.
As the U.S. government, which suffers from chronic fiscal deficits, increases government bond issuance to finance its debt, interest rates rise, causing borrowing costs in other countries to increase as well. According to IMF estimates, a 1 percentage point rise in U.S. Treasury yields leads to a 1 percentage point increase in emerging market government bond yields and a 0.9 percentage point rise in advanced economy government bond yields. In addition to rising interest rates, the appreciation of the dollar increases borrowing burdens for countries issuing dollar-denominated bonds. The U.S. government plans to issue $386 billion in government bonds next month alone, which is expected to further strain the market.
The IMF warned, "The U.S.’s accommodative fiscal policy worsens debt burdens and may make the final phase of inflation deceleration more difficult," adding, "Moreover, the spillover effects on global interest rates could worsen financial conditions and exacerbate difficulties in other countries."
The IMF also analyzed that the fact that this year is an election year will further increase national debts. With elections taking place in 88 countries, the global fiscal deficit relative to GDP is estimated to rise by 0.3% compared to previous years.
The IMF concluded, "Fiscal policies tend to become more expansionary during election periods," and "Support for increased government spending has spread over the past decades, making this year particularly challenging."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
