Global public debt is expected to rise from 94% of gross domestic product in 2025 to 100% in 2029, the International Monetary Fund warned on Wednesday, 14 October, urging governments to correct their deficits before more demanding markets make the adjustment more brutal.

Rodrigo Valdés, director of the IMF's Fiscal Affairs Department, said fiscal outturns in 2026 were weaker than expected six months earlier. The institution also notes that most countries are still considering increasing their spending, while inflation, high debt levels and rising bond yields are narrowing their room for manoeuvre.

The pressure is particularly acute in low-income countries. Interest payments there now absorb more than 15% of tax revenue, compared with about 9% on average between 2011 and 2019, according to the IMF. This burden leaves fewer resources available for infrastructure and public services, just as external financing is already harder to obtain.

Higher interest rates reach African budgets too

Average yields on ten-year government bonds of the Group of Seven rose by more than 110 basis points between February and September, reaching their highest level in almost twenty years. The IMF warns that imbalances in the largest economies can spread to the rest of the world through the cost of financing and capital flows.

The average effective cost of public financing is thus expected to rise from 2.3% in 2021 to 3.7% in 2031. Conditions have remained favourable for many emerging and developing countries, but the institution considers they could deteriorate quickly. It recommends reducing fiscal vulnerabilities and improving debt management before further refinancing deadlines.

For low-income economies, the IMF recommends strengthening tax systems and spending efficiency. Its report judges that a more neutral value-added tax, better treatment of investment costs in corporate income tax and a modernised tax administration can support investment, employment and productivity without reducing overall revenue. The scope of these reforms, however, depends on their design and on protecting the most vulnerable households.

The institution also estimates the budgetary cost of measures taken to mitigate rising energy prices at about 0.5% of global GDP. It calls for limiting support to temporary, targeted and transparent schemes, in order to preserve budgets without neutralising price signals.