The International Monetary Fund (IMF) has advised governments to either increase taxes or reduce expenditures to prevent debt from escalating uncontrollably, especially in an environment of high-interest rates.
The organization highlighted that the UK’s Chancellor, Jeremy Hunt, is unlikely to achieve his goal of reducing borrowing to less than 3% of GDP by 2028. They pointed out that interest on debt might constitute about half of the UK’s future borrowing needs.
The IMF projected that by the end of the decade, global public debt could be nearly equivalent to the global economy’s entire size.
The institution noted that several low-income nations are already grappling with substantial debts, finding it challenging to access financial markets.
While the US and China were particularly identified by the IMF for contributing to the surge in global debt, it also mentioned that other “affluent and large” nations are encountering issues with debt sustainability.
In its most recent fiscal report, the IMF stated, “Despite the absence of immediate financial strains, the continuation of current policies leads to an unsustainable fiscal trajectory. Balancing public accounts is becoming increasingly challenging for all nations.”
The IMF emphasized the need for difficult decisions by policymakers to manage and reduce debt.
When confronting numerous expenditure pressures and political constraints on taxation, insufficient tax levels can result in larger deficits, leading to continually growing debt.
The IMF emphasized the need to adjust either policy aspirations or political stances on taxation to ensure fiscal stability.
