By Reshma Kapadia

Bond vigilantes take note: The global debt situation is raising alarms for the International Monetary Fund, which on Wednesday said "off-the-charts" trade uncertainty was exacerbating a global debt load that it estimates crossed the $100 trillion level in 2024.

The IMF expects levels to rise further, with debt to global gross domestic product hitting 100% by the end of the decade. In a "severe" adverse scenario, global public debt could soar to around 117% of GDP by 2027, marking levels not seen since World War II -- and about 20 percentage points above projections for that year.

"Even that extreme scenario may be underestimating tail risk because trade and geoeconomic uncertainty has escalated, financial conditions have tightened, financial market volatility is visible and spending pressures have intensified," said Vitor Gaspar, director of fiscal affairs at the IMF, in calling for an "urgency in policymaking" for indebted countries to get their houses in order.

In a report published Wednesday about assessing global fiscal health as central bankers and finance ministers gathered for the multilateral organization's spring meetings, the IMF said risks to the fiscal outlook have intensified.

With geopolitical tensions rising, debt levels could rise further if countries choose to bolster spending on things such as defense, or if the disruptions from trade shocks require countries to provide some sort of buffer.

One-third of countries representing 80% of the world's GDP are seeing both higher debt levels and debt growth rates faster than prepandemic levels, according to the IMF. Brazil, China, France, South Africa, the United Kingdom, and the U.S. are key contributors to the increase in global public debt, the agency said.

In the U.S., the IMF said the overall fiscal deficit is expected to decrease from 7.3% of GDP in 2024 to 6.5% in 2025, but that is contingent on higher tariff revenue. Yet, the IMF notes that the magnitude of tariff revenue increase "is highly uncertain."

The 90-day pause on tariffs announced by the U.S. on April 2 and the escalation in tariff rates between the U.S. and China could also lead to a different tariff schedule and lower import revenue. For example, IMF economists said a 100% tariff rate could substantially cut imports, offsetting some of the revenue gains from tariff.

"The U.S. doesn't have a revenue problem, it has a spending problem," U.S. Treasury Secretary Scott Bessent said Wednesday in reference to the country's fiscal deficit at an event held by the Institute of International Finance on the sidelines of the IMF/World Bank meetings. "We need to get back to a long-term sustainable budget deficit of something with a three-handle."

Though the IMF doesn't project a recession or economic crisis at the moment, Gaspar notes that means there is time for countries to take action to build resilience -- and establish the type of cushions that helped some countries better weather the pandemic.

In emerging markets, Era Dabla-Norris, deputy director of the IMF fiscal affairs department, warned that the uncertainty that started in the U.S. with Trump's tariff policies could create major ripples, with the uncertainty over the medium-term pushing up debt to GDP by 4.5 percentage points and possibly as high as 6. That is because the higher geoeconomic uncertainty can dampen growth prospects, lower revenue, and necessitate higher spending that deteriorates countries' fiscal positions, Dabla-Norris said in a briefing.

More volatile financial conditions in the U.S. can also raise borrowing costs for emerging markets and developing countries, with a 100-basis point increase in the U.S. nominal Treasury yield translating to a 100-basis point increase in borrowing costs that lasts for several months. Plus, high debt levels in many emerging markets means high interest expenses eating into budgets and crowding out spending on social programs and infrastructure.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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April 23, 2025 11:56 ET (15:56 GMT)

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