IMF Warning on High Public Debt and Bond Yields

In a blog post published by the International Monetary Fund (IMF) on the Fiscal Monitor Report, it was stated that high public debts trigger market interest rates and fiscal developments, and global public debt is expected to exceed 100 percent of GDP by 2030.

Global Borrowing and Bond Yields

The IMF report emphasized that global public debt is expected to exceed 100 percent of global Gross Domestic Product by 2030. It was recalled that this level was last reached immediately after World War II.

Between February and September, the average 10-year government bond yields of G7 countries increased by more than 1 point, reaching their highest level in approximately 20 years.

Interest Rates and Budgetary Impacts

It was stated that the high and rising debt level strengthens the interaction between fiscal policy and interest rates, and that the increase in policy interest rates worsens budget deficits.

It was noted that the average borrowing cost for governments is expected to rise from 2.3 percent in 2021 to 3.7 percent by 2031.

Narrowing of Fiscal Space

It was stated that rising interest payments reduce the resources that can be allocated for public investments and social spending, limiting governments' capacity to intervene against economic downturns.

A warning was issued that fiscal concerns could drive up market yields and high indebtedness could make it harder to restore price stability.

Measures to Be Taken by Countries

It was conveyed that advanced economies with high indebtedness need to take concrete measures based on credible medium-term plans and realistic assumptions.

It was emphasized that developing economies must reduce their fiscal vulnerabilities and strengthen debt management, while low-income countries need to strengthen their tax systems.