Global public debt is set to surge past 100 percent of GDP by 2029, a level not seen since the aftermath of World War II, as the International Monetary Fund warns that the world economy is entering a prolonged phase of fiscal strain driven by war, energy shocks, and rising interest costs.
Presenting its April 2026 Fiscal Monitor, the IMF said global debt rose to just under 94 percent of GDP in 2025 and is now projected to reach the 100 percent threshold one year earlier than previously forecast, reflecting worsening fiscal dynamics across major economies.
The Fund said the increase is being driven by persistent spending pressures, including social protection needs, defense outlays, and efforts to strengthen economic resilience, alongside higher borrowing costs that are eroding fiscal space in both advanced and developing economies.
The IMF identified the ongoing war involving Iran and wider Middle East instability as a major driver of the worsening outlook, citing its impact on global energy markets, trade routes, and inflation.
The conflict has disrupted key energy infrastructure and heightened risks around the Strait of Hormuz, a critical chokepoint for global oil supplies. As a result, oil prices have surged, contributing to renewed inflationary pressures worldwide and forcing governments to intervene with costly support measures.
IMF officials warned that the energy shock is particularly damaging for import-dependent economies, where higher fuel and food costs are straining budgets and widening fiscal deficits.
At the same time, oil-exporting countries are experiencing mixed effects, with higher prices boosting revenues but production disruptions and global slowdown risks limiting gains.
The Fund strongly cautioned governments against broad-based fuel subsidies and price controls, arguing that they are expensive, inefficient, and distort market signals at a time of global scarcity. Instead, it recommended temporary, targeted support for vulnerable households, combined with spending reallocations within existing budgets to avoid worsening debt dynamics.
Officials warned that widespread subsidies and export restrictions can amplify global price increases by reducing the adjustment of demand to supply shocks, worsening inflation internationally.
Beyond the immediate energy shock, the IMF highlighted deeper structural vulnerabilities in sovereign debt markets. It warned that the growing presence of leveraged non-bank financial institutions and changes in global investor behavior are increasing the risk of sudden repricing in government bond markets.
The Fund also pointed to signs of erosion in the traditional “safe asset” premium associated with U.S. Treasuries, noting that shifts in demand could raise borrowing costs globally and increase volatility in capital flows.
Under adverse scenarios, the IMF said global debt could climb as high as 121 percent of GDP, driven by financial instability, geopolitical fragmentation, or prolonged conflict.
IMF Fiscal Affairs Director Rodrigo Valdés said governments now face a narrowing window to rebuild fiscal buffers, warning that delays will only make future adjustments more painful.
“The longer the delay, the steeper the effort will be in the future,” he said, urging countries to adopt credible medium-term fiscal frameworks and avoid postponing consolidation efforts.
He stressed that while markets currently remain stable, conditions could deteriorate quickly if investor sentiment shifts, particularly given rising reliance on private investors and shorter debt maturities.
The IMF said low-income countries, particularly in Africa, are among the most exposed to the current shock due to rising energy, fertilizer, and shipping costs.
While oil exporters such as Nigeria and Angola may benefit from higher prices, the Fund urged them to save windfall revenues to reduce debt and rebuild fiscal buffers.
For oil importers, officials warned that subsidies and weak revenue bases are increasing fiscal vulnerabilities, especially where interest payments already consume a large share of government income.
The IMF has already downgraded global growth forecasts, warning that the Iran-linked conflict is disrupting energy supplies and could push the world economy toward recession if prolonged.
Officials cautioned that oil prices remaining above $100 per barrel could significantly weaken growth and accelerate inflation, with spillover effects across food systems, transport costs, and industrial production.
The Fund also warned that a deeper escalation in the Middle East could trigger a global recession scenario, with severe impacts on emerging markets and highly indebted economies.
The IMF said the global economy is now facing a convergence of shocks: war-driven energy instability, high debt levels, tightening financial conditions, and structural changes in global capital markets.
It urged governments to act decisively once conditions stabilize, emphasizing that rebuilding fiscal buffers, strengthening domestic revenue mobilization, and improving spending efficiency will be essential to maintaining long-term stability.
“Credible and well-sequenced fiscal adjustment is urgently needed across all country groups,” the Fund said. URN