Title Page
FISCAL MONITOR
Putting a Lid on Public Debt
2024
OCT
Copyright Page
©2024 International Monetary Fund
Cover and Design: IMF CSF Creative Solutions Division Composition: Absolute Service, Inc.
Cataloging-in-Publication Data IMF Library
Names: International Monetary Fund.
Title: Fiscal monitor.
Other titles: World economic and financial surveys, 0258–7440
Description: Washington, DC : International Monetary Fund, 2009- | Semiannual | Some issues also have thematic titles.
Subjects: LCSH: Finance, Public—Periodicals. | Finance, Public—Forecasting—Periodicals. | Fiscal policy—Periodicals. | Fiscal policy—Forecasting—Periodicals.
Classification: LCC HJ101.F57
ISBN: 979–8-40028–126-6 (paper)
979–8-40028–295-9 (PDF)
979–8-40028–297-3 (ePub)
Disclaimer: The Fiscal Monitor is a survey by the IMF staff published twice a year, in the spring and fall. The report analyzes the latest public finance developments, updates medium-term fiscal projections, and assesses policies to put public finances on a sustainable footing. The report was prepared by IMF staff and has benefited from comments and suggestions from Executive Directors following their discussion of the report on October 8, 2024. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.
Recommended citation: International Monetary Fund (IMF). 2024. Fiscal Monitor: Putting a Lid on Public Debt. Washington, DC: IMF, October.
Publication orders may be placed online, by fax, or through the mail: International Monetary Fund, Publication Services
PO Box 92780, Washington, DC 20090, USA
Telephone: (202) 623–7430 Fax: (202) 623–7201
E-mail: publications@imf.org
Contents
Assumptions and Conventions
Further Information
Preface
Foreword
Executive Summary
Chapter 1. Putting a Lid on Public Debt
Introduction
How Are Risks Surrounding Public Debt Projections Distributed?
Fiscal Policy to Get Debt Under Control
Summary and Policy Implications
References
Economy Abbreviations
Glossary
Methodological and Statistical Appendix
Data and Conventions
Fiscal Policy Assumptions
Definition and Coverage of Fiscal Data
Table A. Economy Groupings
Table B. Advanced Economies: Definition and Coverage of Fiscal Monitor Data
Table C. Emerging Market and Middle-Income Economies: Definition and Coverage of Fiscal Monitor Data
Table D. Low-Income Developing Countries: Definition and Coverage of Fiscal Monitor Data
List of Tables
Advanced Economies (A1–A8)
Emerging Market and Middle-Income Economies (A9–A16)
Low-Income Developing Countries (A17–A22)
Structural Fiscal Indicators (A23–A25)
Selected Topics
IMF Executive Board Discussion of the Outlook, October 2024
Figures
Figure 1.1. Public Debt-to-GDP Ratio, 2000-29
Figure 1.2. Three-Year Forecast Errors of Public Debt Projections, 1990-2021
Figure 1.3. Quantile Regression Results: Future Debt-to-GDP Ratio and Financial, Political, and Economic Variables
Figure 1.4. Global Debt-at-Risk and Its Evolution
Figure 1.5. Initial Debt and Debt-at-Risk
Figure 1.6. Debt-at-Risk across Income Groups
Figure 1.7. Financial Conditions and Debt-at-Risk across Income Groups
Figure 1.8. Primary Balance and Debt-at-Risk by Fiscal Rules
Figure 1.9. Strong Co-movements of Sovereign Bond Yields
Figure 1.10. Share of Total Variance in Sovereign Bond Yields Explained by Global Factors
Figure 1.11. Correlation of Selected Indicators with Global Sovereign Bond Yield Volatility
Figure 1.12. Key Drivers of Global Volatility of Sovereign Bond Yields
Figure 1.13. Distribution of Unidentified Debt Excluding Exchange Rate Movements, 1991–2023
Figure 1.14. Components of Unidentified Debt, 2010-23
Figure 1.15. Components of Unidentified Debt
Figure 1.16. Increase in Unidentified Debt after a Banking Crisis and Financial Stress
Figure 1.17. Selected Key Indicators of Debt Vulnerabilities
Figure 1.18. Median Fiscal Adjustment and Probability of Stabilizing or Reducing Debt by 2029
Figure 1.19. Median Fiscal Adjustment across Scenarios: Baseline, Historical, and High Probability to Stabilize Debt
Figure 1.20. Distributive Impact of Fiscal Adjustment across Households
Figure 1.21. Impact of Fiscal Adjustment on Aggregate Output and Consumption
Figure 1.22. Illustrative Preferred Fiscal Adjustment between an Advanced Economy and an Emerging Market Economy
Figure 1.23. Correlations between Fiscal Institutions and Unidentified Debt
Figure 1.24. Unidentified Debt and Their Relationships with Budget Transparency and Compliance with Fiscal Rules
Online-Only Annexes
Online Annex 1.1. Debt-at-Risk Framework
Online Annex 1.2. Global and Local Drivers of Sovereign Bond Yields
Online Annex 1.3. Unpacking Unidentified Debt in Debt Dynamics
Online Annex 1.4. Optimal Fiscal Reaction Function
Online Annex 1.5. Fiscal Adjustments and Probability of Debt Stabilization
Online Annex 1.6. Fiscal Adjustments under the Heterogenous Agent New Keynesian (HANK) Model
Assumptions and Conventions
The following symbols have been used throughout this publication:
. . . to indicate that data are not available
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist
– between years or months (for example, 2008–09 or January–June) to indicate the years or months covered, including the beginning and ending years or months
/ between years (for example, 2008/09) to indicate a fiscal or financial year
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
“n.a.” means “not applicable.”
Minor discrepancies between sums of constituent figures and totals are due to rounding.
As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Further Information
Corrections and Revisions
The data and analysis appearing in the Fiscal Monitor are compiled by IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary. All substantive changes are listed in the Table of Contents of the online PDF of the report.
Print and Digital Editions
Print copies of this Fiscal Monitor can be ordered from the IMF Bookstore at imfbk.st/551781.
Digital
Multiple digital editions of the Fiscal Monitor, including ePub, enhanced PDF, and HTML, are available on the IMF eLibrary at www.elibrary.imf.org/FM.
Download a free PDF of the report and data sets for each of the figures therein from the IMF website at www.imf.org/publications/FM, or scan the QR code below to access the Fiscal Monitor web page directly:
Copyright and Reuse
Information on the terms and conditions for reusing the contents of this publication are at www.imf.org/external/terms.htm.
Preface
The projections included in this issue of the Fiscal Monitor are drawn from the same database used for the October 2024 World Economic Outlook and Global Financial Stability Report (and are referred to as “IMF staff projections”). Fiscal projections refer to the general government, unless otherwise indicated. Short-term projections are based on officially announced budgets, adjusted for differences between the national authorities and the IMF staff regarding macroeconomic assumptions. The fiscal projections incorporate policy measures that are judged by the IMF staff as likely to be implemented. For countries supported by an IMF arrangement, the projections are those under the arrangement. In cases in which the IMF staff has insufficient information to assess the authorities’ budget intentions and prospects for policy implementation, an unchanged cyclically adjusted primary balance is assumed, unless indicated otherwise. Details on the composition of the groups, as well as country-specific assumptions, can be found in the Methodological and Statistical Appendix of the October 2024 Fiscal Monitor.
The Fiscal Monitor is prepared by the IMF Fiscal Affairs Department under the general guidance of Vitor Gaspar, Director of the Department. The project was directed by Era Dabla-Norris, Deputy Director, and Davide Furceri, Division Chief. The main authors of Chapter 1 in this issue are W. Raphael Lam (team lead) and Jeta Menkulasi (team lead), Yongquan Cao, Daniel Garcia-Macia, Camilo Gomez Osorio, Faizaan Kisat, Anh Dinh Minh Nguyen, Felipe Palmeira Bardella, Sergejs Saksonovs, Alexandra Solovyeva, and Bryn Welham; with contributions from Vybhavi Balasundharam, Javier Bianchi (Federal Reserve Bank of Minneapolis), Luca Bettarelli (University of Palermo), Domenico Giannone, Pablo Ottonello (University of Maryland), Ignacio Presno (Federal Reserve Board), Yongzheng Yang, and Chenlu Zhang. Hongchi Li, Xueqi Li, and Zhonghao Wei provided excellent research assistance. Meron Haile and Andre Vasquez provided excellent coordination and editorial support. The chapter also benefited from discussions with Jean-Marc Atsebi, Gabriel Hegab, João Jalles (University of Lisbon), Manabu Nose, Graham Prentice, Julien Reynaud, and Alessandro Scipioni.
The Methodological and Statistical Appendix was prepared by Xueqi Li under the guidance of Alexandra Solovyeva. Axana Abreu Panfilova, Wala’a El Barasse, and Gemma Diaz from the Communications Department led the editorial team and managed the report’s production, with editorial and production support from Michael Harrup, Lucy Scott Morales, Katy Whipple, Harold Medina, Absolute Service, Inc., and The Grauel Group.
Inputs, comments, and suggestions were received from other departments in the IMF, including area departments—namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department—as well as the Communications Department, Institute for Capacity Development, Legal Department, Monetary and Capital Markets Department, Research Department, Secretary’s Department, Statistics Department, and Strategy, Policy, and Review Department. Chapter 1 of the Fiscal Monitor also benefited from comments by Tobias Broer (Paris School of Economics), Michele Cavallo (Federal Reserve Board), Canlin Li (Federal Reserve Board), Josefin Meyer (DIW Berlin), Ugo Panizza (Geneva Graduate Institute), and Eric Parrado Herrera (Inter-American Development Bank) in the IMF workshop on “Putting a Lid on Public Debt” in July 2024.
Both projections and policy considerations are those of the IMF staff and should not be attributed to workshop participants, Executive Directors, or to their national authorities.
Foreword
After COVID-19, the most vigorous fiscal and monetary response ever seen, regional wars, turbulence in energy and food markets, and the largest surge of inflation in decades, the world economy seems on its way to a soft landing (October 2024 World Economic Outlook). Inflation is approaching its target in major economies and is close to prepandemic levels. Monetary policy has already moved past its pivot, and policy easing is projected to continue. Financing conditions are generally easy (October 2024 Global Financial Stability Report). The time is ripe to take a medium- to long-term view on public finances.
The October 2024 Fiscal Monitor offers important insights on public debt and deficits in the world economy. It focuses on medium-term prospects and risks. The bottom line: now is the time for a strategic pivot in fiscal policy.1
Deficits are high, and global public debt is very high and rising, projected to go above $100 trillion at the end of 2024. If it continues at the current pace, the global debt-to-GDP ratio will approach 100 percent by the end of the decade, rising above the pandemic peak. Indeed, public debt is higher and projected to grow faster in about one-third of the countries covered by World Economic Outlook projections, but they represent more than 70 percent of world GDP. Countries where debt is expected to rise faster than in the prepandemic period include not only China and the United States but also other large countries such as Brazil, France, Italy, South Africa, and the United Kingdom. In contrast, for most countries, that is not the case.
But the message of high and rising debt masks considerable diversity. We live in a world of contrasts. If we simply take out China and the United States, the global public debt-to-GDP ratio would be about 20 percentage points lower.
The Fiscal Monitor identifies three reasons why public debt may be worse than it looks: (1) spending pressures from underlying trends—technological change and economic transformation, climate, and demographics—and challenging politics at national, continental, and global levels; (2) optimism bias in debt projections; and (3) intrinsic uncertainty associated with economic, financial, and political developments.
The Fiscal Monitor presents a novel framework— debt-at-risk—that provides a summary of risks around the most likely debt projection over one to five years ahead. The quantification of risks allows policymakers to grasp the likelihood of relevant alternatives, particularly in a severely adverse scenario. Such quantification makes it possible for policymakers to take precautions to evade undesirable outcomes. According to our estimates, the difference between the baseline and a severe adverse scenario corresponding to the projection for the 95th percentile in the public debt-to-GDP ratio, at a three-year horizon, opens a gap of 20 percentage points.
In most countries, fiscal adjustments currently in the pipeline are insufficient to deliver, with confidence, stable or declining public debt ratios. Additional efforts are necessary. Delays are costly and risky, and it matters how it is done. The IMF’s Managing Director urges an approach focused ultimately on people and growth.2 Countries that are sufficiently away from debt distress should adjust in a sustained and gradual way to ensure debt declines without unnecessary adverse effects on growth and employment. The Fiscal Monitor quantifies the relative effects of different fiscal instruments. It finds, for example, that cuts in public investment have severe effects on growth. However, it is unfortunately often the most politically expedient way to axe spending. Earlier work in the Fiscal Affairs Department shows that countries with strong fiscal institutions are able to protect public investment even in crises.3
Many of the aspects relevant for policymakers can be summarized in a fiscal policy trilemma.4 In an environment of high deficits and high and rising debt, governments everywhere face a seemingly impossible choice involving three incompatible imperatives: (1) irresistible pressures to spend more in a variety of areas, such as defense, climate change, competitiveness, growth, education, health, and infrastructure; (2) an absolute political resistance to taxation; and (3) the objective of macroeconomic stability encompassing public debt sustainability, monetary stability, and financial stability. The trilemma puts countries in a bind: if a country caves to spending pressures without raising taxes, deficits and debt will continue to rise, which will eventually prove unsustainable and cause instability.
Nowhere is the trilemma more dramatic than in the poor countries in sub-Saharan Africa.5 Tax capacity is weaker, debt-carrying capacity is lower, and financing is tighter. To give an illustration, IMF staff estimate spending pressures in these countries amount to 17.5 percent of GDP between 2023 and 2030. Spending is necessary to eliminate extreme poverty and hunger and to invest in people and infrastructure.
Fiscal and other structural policies (Chapter 3 of the October 2024 World Economic Outlook) can help deliver sustainable and inclusive growth thereby alleviating the trilemma. In this foreword, we have already mentioned the importance of public investment and public investment institutions and practices. But there is much more. The Fiscal Monitor in the past has looked at policies to favor innovation and research (Chapter 2 of the April 2024 Fiscal Monitor). Other recommendations here include promoting good governance and eliminating vulnerabilities to corruption, improving the tax system, and prioritizing education and health.
The trilemma is a test. It does not need to be a trap.
Vitor Gaspar
Director of the Fiscal Affairs Department
Executive Summary
Global public debt is very high. It is expected to exceed $100 trillion (93 percent of global GDP) in 2024 and to keep rising through the end of the decade (approaching 100 percent of GDP by 2030). Although debt is projected to stabilize or decline in about two-thirds of countries, it will remain well above levels foreseen before the pandemic. Countries where debt is not projected to stabilize account for more than half of global debt and about two-thirds of global GDP.
There are good reasons to believe that future debt levels could be higher than currently projected. The political discourse on fiscal issues has increasingly tilted toward higher government spending in recent decades. Fiscal policy uncertainty has increased, and political redlines on taxation have become more entrenched. Spending pressures to address green transitions, population aging, security concerns, and long-standing development challenges are mounting. Further, past experience shows that projections tend to systematically underestimate debt levels: realized debt-to-GDP ratios three years ahead are, on average, higher than projected by 6 percentage points of GDP.
This chapter shows that risks to the debt outlook are heavily tilted to the upside and much larger fiscal adjustments than currently planned are required to stabilize (or reduce) debt with high probability. Rebuilding fiscal buffers in a growth-friendly manner and containing debt is essential to ensure sustainable public finances and financial stability.
Elevated Upside Risks to the Debt Outlook
The chapter presents a novel approach—the “debt-at-risk” framework—for assessing risks surrounding the baseline debt projections and how they vary across countries and over time. The framework shows how changes in economic, financial, and political conditions can shift the distribution of future debt-to-GDP ratios. Global debt-at-risk—the level of future debt in an extreme adverse scenario— is estimated to be nearly 20 percentage points of GDP higher three years ahead than in the baseline projections of the World Economic Outlook, reaching 115 percent of GDP in 2026. This is because high debt levels today amplify the effects of weaker growth or tighter financial conditions and higher spreads on future debt levels.
Debt-at-risk varies significantly across countries. For advanced economies as a group, three-year-ahead debt-at-risk has declined somewhat from pandemic peaks and is estimated at 134 percent of GDP, whereas debt-at-risk has increased to 88 percent of GDP for emerging market and developing economies. Differences within and across country groups reflect an initial higher level of debt in advanced economies and large primary deficits in systemically important economies such as China and the United States. Financial conditions, however, play a greater role in adding to debt risks in emerging market and developing economies.
The chapter shows that global factors increasingly drive the fluctuations in government borrowing costs across countries. This suggests that high debt levels and uncertainty surrounding fiscal and monetary policy in systematically important countries could increase the volatility of sovereign yields and debt risks for other countries.
Unidentified debt—the change in debt not explained by interest-growth differentials, budgetary deficits, or exchange rate movements—is another reason why debt outturns could be higher than projected. The chapter finds that unidentified debt has historically been large, averaging 1.0–1.5 percent of GDP per year and increasing by up to 7 percentage points of GDP following financial system stress. This stems primarily from the materialization of contingent liabilities and fiscal risks as well as arrears.
Rebuilding Fiscal Buffers and Safeguarding Debt Sustainability
Current fiscal adjustment plans fall far short of what is needed to ensure that debt is stabilized (or reduced) with high probability. Now is an opportune time to rebuild buffers. With inflation moderating and central banks expected to ease monetary policy, economies are better placed to absorb the economic effect of fiscal tightening. Moreover, delaying is costly: in countries where debt is projected to increase further—such as Brazil, France, Italy, South Africa, the United Kingdom, and the United States—delaying action will make the required adjustment even larger. Waiting is risky: country experiences show that high debt can trigger adverse market reactions and constrains room for budgetary maneuver in the face of negative shocks. Key elements of the needed fiscal adjustments involve the following:
Identifying the size. Cumulative fiscal adjustment of 3.0–4.5 percent of GDP, on average, is needed to stabilize or reduce debt with high probability. The magnitude of the required fiscal adjustment is higher than that currently projected, and almost twice the size of past adjustments, especially in those countries where debt is not projected to stabilize. In countries with more benign debt outlooks, optimizing fiscal space while maintaining debt sustainability is a priority.
Designing the composition. Careful design of fiscal adjustment can prevent countries from falling into a prolonged period of anemic growth. Key elements of fiscal adjustment vary across countries. Advanced economies should reprioritize expenditures, advance entitlement reforms, increase revenues through indirect taxes where taxation is low, and remove inefficient tax incentives. Emerging market and developing economies have greater potential to increase tax revenues by upgrading tax systems; broadening tax bases, including by reducing informality; and enhancing revenue administration capacity. On the expenditure side, efforts to rationalize large government wage bills, strengthen social safety nets, and safeguard public investment are key to limiting the negative impact on output, protecting vulnerable households, and supporting debt reduction.
Calibrating the pace. Gradual but sustained fiscal adjustment would strike a balance between containing debt vulnerabilities and maintaining the strength of private demand. Fast-track consolidation would also require politically unfeasible hikes in tax rates as well as spending cuts. That said, economies with high risk of debt distress and those that have lost market access need front-loaded adjustment, although how it is designed will matter.
Building credibility. Governments need deliberate fiscal plans, framed within credible medium-term fiscal frameworks and modern public financial management systems to anchor their adjustment paths and reduce fiscal policy uncertainty. Strong independent fiscal oversight can reinforce government credibility.
Strengthening fiscal governance. Countries must avoid unidentified debt. Assessing contingent liabilities, including those associated with state-owned enterprises, and monitoring them closely are critical in this regard. Strengthening expenditure controls and active cash management can limit overspending. Governments should also provide the public with more transparent, granular, and timely information on debt, including the composition of creditors and instruments, and exposure to risks.
Addressing debt distress. For countries facing debt distress or unsustainable debt, timely and adequate restructuring is needed, along with fiscal adjustments to restore debt sustainability. Recent IMF reforms to its debt and lending frameworks, combined with efforts from creditor committees and the Global Sovereign Debt Roundtable, have helped streamline sovereign debt restructuring and shortened restructuring timelines. Further strengthening these processes is crucial for facilitating efficient debt restructuring. To support low-income developing countries, greater coordinated efforts are necessary to ensure the provision of concessional financing to avoid undue fiscal tightening.
Gita Gopinath, “A Strategic Pivot in Global Fiscal Policy,” speech at the Central Bank of Ireland’s Whitaker Lecture, Dublin, September 18, 2024.
Kristalina Georgieva, “A Low-Growth World Is an Unequal, Unstable World,” IMF Blog, July 23, 2024.
Gerd Schwartz, Manal Fouad, Torben S. Hansen, and Genevieve Verdier, Well Spent: How Strong Infrastructure Governance Can End Waste in Public Investment (Washington, DC: International Monetary Fund, 2020).
Vitor Gaspar, “Solving the Global Fiscal Policy Trilemma,” Foreign Policy, September 23, 2024.
Abebe Aemro Selassie, “A Moment of Peril,” keynote speech at the Oxford Africa Conference, University of Oxford, May 28, 2021.