Global public debt is projected to climb to an all-time high in 2020 due to governments' unprecedented fiscal response to the coronavirus crisis and a decline in tax revenues caused by the pandemic-induced recession, but further support is necessary to ensure the economic recovery, according to the International Monetary Fund.
Fiscal actions by countries across the globe amounted to $11.7 trillion, or nearly 12% of global GDP, as of Sept. 11, the IMF said in its latest "Fiscal Monitor" report. As a result, government deficits would rise by an average of 9% of GDP in 2020, while global public debt is forecast to approach a record 100% of GDP and stabilize around that level until 2025, up from about 83.0% in 2019, the IMF added.
But the surge in public debt levels is not the "most immediate risk," according to the IMF, which noted that the near-term priority for governments is to avoid a premature withdrawal of fiscal support.
"Support should persist, at least into 2021, to sustain the recovery and to limit long-term scarring," Vitor Gaspar, director of the IMF's Fiscal Affairs Department, wrote in the report.
However, some emerging market economies and low-income developing countries that are grappling with tighter financing constraints must reprioritize spending and "deliver more with less by enhancing efficiency," the IMF said. As of September, about 54% of low-income countries are in debt distress or at high risk of debt distress, up from 51% in 2019.
"[F]or many low-income countries, urgent action is required now," IMF Managing Director Kristalina Georgieva said. "Given their heavy debt burdens, they are now struggling to maintain vital policy support. They need access to more grants, concessional credit, and debt relief."
To aid the post-pandemic recovery, the IMF called on countries to prioritize investing in healthcare systems and education, saying public investments serve as a catalyst for private investments.
"Faster progress on medical solutions could speed up the recovery; it could add almost $9 trillion to global income by 2025," Georgieva said.
According to the IMF, an increase of 1% of GDP in public investment in advanced economies and emerging markets could raise GDP by 2.7% and create between 20 million and 33 million jobs.