Global Debt Projected To Touch Almost 100% In 2021 Amid COVID-19 Crisis, Says International Monetary Fund (IMF)

Global public debt is estimated to touch 98 per cent of GDP at the end of 2020, International Monetary Fund (IMF) said on Thursday in its latest fiscal monitor update, according to which the government debt in India is expected to remain elevated at 83 per cent of GDP. The COVID-19 pandemic has posed a severe challenge to public finances, the report said noting that the contraction in output and ensuing fall in revenues, along with emergency lifelines, boosted government deficits and debts beyond levels recorded during the global financial crisis.

Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department told reporters that the government revenue declined everywhere, public debt jumped up to 98 per cent compared with 84 per cent before COVID-19. “From 2021 onwards debt stabilizes at the high level, and stays elevated well above pre-COVID-19 levels up to the end of the forecasting horizon,” he said.

According to the Fiscal Monitor report, the government debt is expected to remain elevated, at 83 per cent of GDP, highlighting the need for a credible medium-term fiscal framework to enhance confidence, anchored on revised fiscal objectives and revenue mobilization.

Noting that global public debt is projected to edge up further — from 98 per cent of GDP in 2020 to almost 100 per cent of GDP in 2021 — driven by advanced and emerging market economies, Paolo Mauro, Deputy Director of the Fiscal Affairs Department at IMF said, with the pandemic still out of control and economies growing below potential, additional fiscal support will be necessary in 2021, to protect livelihoods.

“High public debt need not raise immediate concerns on debt sustainability, but highly indebted emerging markets and developing economies could find it challenging to borrow more. Overall, the prospects for market financing are good, but near-term debt vulnerabilities remain high in some developing countries,” he said in response to a question.

To address a steep rise in public debt in developing countries, the international community — including the IMF — has provided grants, concessional loans, and debt relief in 2020, including for 38 countries assessed to be “at high risk.”

Fiscal adjustment and, in a few cases, debt restructurings are expected to contribute to debt reduction. Nearly everywhere, credible medium-term strategies need to be developed, with the objective of stabilizing and gradually bringing debt to safer levels over time, supported by pro-growth and inclusive measures, he said.

Gasper said that low-income developing countries urgently need funding for social services, health and education, COVID-19 control measures, and support for food programs in countries that face the risk of malnutrition. The IMF, he said, is helping and remains committed to providing further support. Since the start of the pandemic, it has provided financing totaling about $ 105 billion to more than 80 countries, of which five are low-income developing countries. More than $ 285 billion are committed overall out of a lending capacity of $ 1 trillion.

Many poor nations need additional support through grants, concessional lending, and debt relief. That includes the debt service suspension initiative, but on a case-by-case basis, deeper debt treatments may be called for, including restructuring, Gasper said.

Asserting that the international community should act together to foster inclusive growth, Gasper called for universal availability of effective vaccines. “Health should come first, and lifeline should be targeted as needed. COVID-19 will not be under control anywhere until it is under control everywhere. The sooner that happens, the sooner economic activity will pick up, the sooner jobs will come back,” Gaspar told reporters.

“Making effective vaccines universally available is the priority number one, Lifeline should be targeted to the most vulnerable and kept as appropriate in response to developments in virus propagation,” he said. Releasing the annual fiscal monitor update, Gasper called for facilitating the transition to a smart, green, resilient and inclusive growth model. “This applies to support today, and becomes even more important as the recovery takes hold,” he said.