The International Monetary Fund (IMF) has issued a stark warning that global public debt is on course to exceed 100 percent of global GDP by 2029—levels not seen since the aftermath of World War II—raising serious concerns about the sustainability of government finances worldwide.

Speaking during the Spring Meetings of the IMF and the World Bank in Washington, Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, revealed that global public debt had already climbed to approximately 94 percent of GDP in 2025.

This figure means that the total debt accumulated by governments around the world is now nearly equal to the entire annual output of goods and services produced globally. Economists warn that such levels could constrain long-term growth, as governments face increasing difficulty in servicing debt while maintaining essential public spending.

War on Iran Intensifies Fiscal Strain

Valdés pointed to the ongoing Israeli–American war on Iran as a major new source of fiscal pressure on an already fragile global economy. He noted that the conflict is having tangible worldwide consequences, particularly through disruptions in energy markets and tightening global financial conditions.

According to the IMF official, rising oil prices and supply uncertainties have forced governments into difficult policy choices—balancing the need to shield populations from inflation with the necessity of preserving fiscal stability.

“The war in Iran is contributing to negative fiscal outcomes,” Valdés said, citing a combination of rising commodity prices, increasing global interest rates, and a strengthening US dollar. These factors, he warned, are placing disproportionate strain on emerging and developing economies.

Rising Costs, Shrinking Fiscal Space

The surge in energy prices linked to the conflict has amplified inflationary pressures across global markets, further complicating economic management for policymakers. Governments are increasingly being pushed to expand spending to cushion citizens from rising living costs, even as their fiscal space—the ability to sustainably finance expenditures—continues to shrink.

Analysts note that higher global interest rates are also increasing borrowing costs, making it more expensive for countries to refinance existing debt or issue new bonds. This dynamic risks triggering debt distress in vulnerable economies, particularly those already grappling with high debt burdens and weak currencies.

Policy Prescriptions and Structural Reforms

To address mounting fiscal risks, the IMF has called for structural reforms aimed at improving long-term sustainability. Valdés emphasized the need for governments to gradually phase out costly fuel subsidies, which place heavy burdens on public budgets.

He also urged countries to broaden their tax bases and improve revenue collection systems, arguing that such measures are essential to restoring fiscal balance without undermining economic growth.

Markets on Edge

Global financial markets have reacted nervously to the ongoing geopolitical tensions. The war on Iran has contributed to heightened volatility, with oil prices remaining elevated and inflationary pressures persisting across multiple regions.

Despite these challenges, the IMF noted that the global economy has shown a degree of resilience in recent years. However, this resilience is being tested as fiscal conditions deteriorate and geopolitical risks intensify.

A Fragile Outlook

With global debt levels rising rapidly and new geopolitical shocks emerging, the IMF’s warning underscores the growing fragility of the international economic system. If current trends continue, governments may face increasingly difficult choices between maintaining economic stability and addressing the social impacts of inflation and austerity.

The coming years are expected to be critical, as policymakers navigate a complex landscape shaped by debt, conflict, and shifting global power dynamics. (ILKHA)