KEY POINTS
• Global public debt is projected to reach levels comparable to World War II by 2028.
• Rising interest payments are diverting funds from education, infrastructure and other development priorities.
• IMF urges governments to strengthen fiscal discipline, diversify trade and deepen international cooperation.
• Stablecoins, tokenisation and central bank digital currencies present both opportunities and financial stability risks.
MAIN STORY
The International Monetary Fund (IMF) has urged governments to strengthen fiscal discipline, improve trade cooperation and establish sound regulatory frameworks for digital finance as rising debt, geopolitical tensions and technological changes increase pressure on the global economy.
The call was contained in the IMF’s 2026 Annual Report, titled “Navigating a Precarious World”, released on Wednesday. The report identified rising public debt, increased government spending needs, disruptions to trade and energy supplies, and rapid developments in financial technology as major pressures confronting economies.
According to the IMF, global public debt has resumed its upward trajectory after briefly declining from the historic levels recorded during the pandemic. It projected that debt could reach levels comparable to those seen around World War II by 2028.
The report said the war in the Middle East had added to fiscal pressures through higher energy prices, tighter financial conditions and weaker growth, with low income energy importing countries particularly exposed.
It also noted that long term sovereign bond yields had increased and become more volatile. Interest payments have risen by almost half in three years, from about two per cent to nearly three per cent of GDP.
The IMF said the growing interest burden was diverting trillions of dollars globally from education, infrastructure and other development priorities, limiting the resources available for development spending.
It warned that fiscal vulnerabilities could also create financial stability risks as large borrowers increasingly turned to short term debt to manage higher interest costs amid tighter financial conditions.
At the same time, increased borrowing by advanced economies could reduce the funds available to other sovereign borrowers, while low income countries face declining development assistance.
To manage these pressures, the IMF recommended stricter fiscal prioritisation, with governments urged to control spending while protecting resources for economic growth and essential social services.
“While permanent reforms to unsustainable public pensions and regressive fuel subsidies are difficult, they are essential to help free up funds to retire debt and make transformative investments.”
The fund also said governments could strengthen revenue mobilisation to finance digital infrastructure, education and social safety nets. Such investments, it said, would help countries take advantage of artificial intelligence while supporting workers affected by technological changes.
“In low-income countries, IMF expertise in revenue mobilisation has helped offset declining development assistance. IMF financing has helped countries to both weather immediate crises and build long-term resilience.”
Trade is another area of concern. The IMF said geopolitical tensions, changing trade relationships and supply chain disruptions were reshaping international commerce and creating new risks to global growth.
Despite these disruptions, global trade volumes increased by nearly five per cent in 2025, with technology related goods recording strong growth. The IMF expects trade growth to slow in 2026 as the Middle East conflict adds to existing barriers and uncertainty.
The fund recommended that countries diversify their trading partners and sources of supply while strengthening regional and international cooperation to make trade more resilient.
It also called for predictable, transparent and clearly communicated trade policies to reduce uncertainty for businesses and consumers. Greater use of multilateral and plurilateral trade negotiations, alongside deeper regional integration through arrangements such as ASEAN and the European Union, was also encouraged.
“The IMF is also providing deeper analysis of how to address today’s high global imbalances and their negative spillovers while stimulating growth.”
Digital finance was identified as another area requiring stronger policy coordination. The IMF said the rapid growth of stablecoins, tokenisation and central bank digital currencies was creating opportunities for financial inclusion and more efficient payments, but also introducing new risks.
Digital finance could reduce the cost of cross border payments and expand access to financial services, particularly in regions such as Asia where mobile money and digital payments are already widely used.
However, the IMF warned that stablecoins could become unstable if the assets backing them lose value or users lose confidence. Large scale redemptions could also affect markets for government bonds held by stablecoin issuers.
The fund therefore called for coherent global regulatory frameworks to address the emerging risks associated with digital finance.
THE ISSUES
- Rising debt is increasing the amount governments must spend on interest payments, leaving fewer resources for education, infrastructure and other development priorities.
- Higher borrowing costs and tighter financial conditions create greater pressure for low income countries, particularly those already facing weaker development assistance and higher energy costs.
- Trade disruptions are making diversification and international cooperation more important as governments seek to protect supply chains and reduce uncertainty for businesses and consumers.
- The expansion of digital finance creates opportunities to reduce payment costs and widen financial inclusion, but weak or fragmented regulation could expose financial systems to new risks.
WHAT’S BEING SAID
“While permanent reforms to unsustainable public pensions and regressive fuel subsidies are difficult, they are essential to help free up funds to retire debt and make transformative investments.” – International Monetary Fund
“In low-income countries, IMF expertise in revenue mobilisation has helped offset declining development assistance. IMF financing has helped countries to both weather immediate crises and build long-term resilience.” – International Monetary Fund
“Large redemptions could pose a risk to markets for the government bonds held by stablecoin issuers.” – International Monetary Fund
WHAT’S NEXT
The IMF is calling for governments to tighten fiscal prioritisation, strengthen revenue mobilisation, diversify trade relationships and deepen regional and international cooperation. It also wants countries to develop coordinated regulatory frameworks for digital finance, including measures addressing stablecoin risks and improving interoperability between payment systems.
BOTTOM LINE
The IMF’s 2026 outlook points to rising debt costs, trade uncertainty and rapid financial innovation as interconnected pressures on governments. It is urging countries to protect essential spending while strengthening the fiscal, trade and regulatory systems needed to manage those pressures.
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