KEY POINTS
- Global public debt reached 94 per cent of GDP in 2025 and is projected to hit 100 per cent by 2029, according to the IMF.
- Rising interest payments and growing government spending are making debt stabilisation more difficult.
- IMF officials urged governments to strengthen tax collection and eliminate inefficient tax exemptions.
- Tax administration reforms have generated additional revenue equivalent to nearly two per cent of GDP in some countries, according to IMF research.
- The Fund called for more efficient public spending while protecting essential investment in healthcare, education and infrastructure.
MAIN STORY
The International Monetary Fund (IMF) has urged governments to strengthen their public finances as global public debt is projected to reach 100 per cent of Gross Domestic Product (GDP) by 2029, with rising borrowing costs and spending commitments increasing pressure on government budgets.
The Fund’s Fiscal Monitor, presented during the IMF and World Bank Group Annual Meetings in Bangkok, Thailand, on Wednesday, October 14, warned that global public debt had reached 94 per cent of GDP in 2025 and was on course to reach the 100 per cent threshold by 2029. The IMF said the accumulation was driven largely by the world’s major economies.
Presenting the report, Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, said resilient economic activity had not translated into a meaningful improvement in government finances. He warned that the opportunity for governments to adjust their budgets in an orderly manner was narrowing.
Valdés urged governments to act before deteriorating market conditions forced them to make more difficult fiscal adjustments. He noted that competing demands for social services, defence, healthcare and other development priorities could make it harder to improve budget balances.
Rising interest rates are also expected to increase debt-servicing costs as governments refinance existing obligations at higher rates. Because public debt is often refinanced over several years, the full effect of higher borrowing costs can take time to appear in government budgets.
Valdés highlighted the interest-growth differential, which measures the relationship between the interest rate paid on public debt and the rate at which an economy grows. When borrowing costs exceed economic growth, governments generally face greater difficulty stabilising their debt relative to GDP, particularly when they continue to run primary budget deficits.
The IMF has warned that less favourable interest-growth conditions are increasing the risk of further debt accumulation across advanced and emerging market economies.
Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, said emerging and developing economies needed to improve domestic revenue mobilisation to meet debt obligations and finance development programmes.
The Fund recommends broadening tax bases, removing inefficient exemptions, simplifying tax systems and strengthening tax administration. These measures could increase government revenue without necessarily raising tax rates across the board.
Furceri also warned that complicated tax procedures could discourage investment and undermine the productivity of small and young businesses. He advocated tax systems that reduce unnecessary economic distortions while making revenue collection more efficient.
According to the research cited by Furceri, tax administration reforms in some countries had generated additional revenue equivalent to nearly two per cent of GDP.
He also stressed that stronger revenue collection must be accompanied by more efficient public spending. Governments, he said, should protect investment in education, healthcare and infrastructure while directing social assistance towards people most in need.
THE ISSUES
The IMF’s warning highlights the growing pressure on governments to balance debt obligations against demands for public services and economic development.
When governments borrow more or refinance existing debt at higher interest rates, a larger share of public revenue may be needed to service those obligations. This can leave less money available for infrastructure, healthcare, education and other programmes, particularly in countries with limited revenue bases.
The interest-growth differential is central to this challenge. If interest rates remain above economic growth rates, debt can become harder to stabilise unless governments improve their primary budget balances or benefit from other favourable conditions.
For developing economies, raising domestic revenue is one way to reduce dependence on borrowing. However, tax reforms can also create difficulties if they impose excessive compliance costs on businesses or place additional pressure on households already facing high living costs.
The IMF’s recommendation to simplify tax systems and remove inefficient exemptions therefore places emphasis on improving how revenue is collected, rather than relying exclusively on higher tax rates.
Spending efficiency is equally important. Increasing revenue will not necessarily improve public finances if expenditure continues to rise without corresponding improvements in public services or economic productivity.
For Nigeria, the issues are particularly relevant to government revenue mobilisation, debt servicing and the funding of essential public services. However, the IMF’s global debt projection is not a forecast of Nigeria’s individual debt-to-GDP ratio.
WHAT’S NEXT
Governments will face pressure to demonstrate credible plans for managing debt, controlling expenditure and improving revenue collection. The effectiveness of those plans will depend on their ability to address fiscal weaknesses without undermining economic activity or essential public services.
For emerging and developing economies, the implementation of simpler tax systems, stronger compliance measures and more efficient public spending will be important in determining how much additional revenue can be raised and how effectively it can be used.
BOTTOM LINE
The IMF projects that global public debt will reach the equivalent of the world economy’s annual output by 2029. It is urging governments to improve revenue collection, manage expenditure and act early to limit the impact of rising borrowing costs on public finances.
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