Global debt expected to hit 100% of GDP by 2029

The International Monetary Fund (IMF) has warned that growing public debt, higher borrowing costs and changing investor behaviour are increasing risks to the global economy.

In its latest Fiscal Monitor report, released as part of the IMF’s semiannual budget and projections update, the organisation said the global fiscal outlook had become more uncertain as governments face mounting spending pressures and rising interest payments.

The IMF projected that gross global public debt would reach 100% of global Gross Domestic Product (GDP) by 2029 — one year earlier than previously forecast. Debt levels in the United States are also expected to rise at a faster pace than earlier estimates.

Interest costs climb sharply

According to the report, global interest payments now account for nearly 3% of worldwide GDP, compared with about 2% four years ago.

The IMF said higher borrowing costs are putting increasing pressure on government finances, particularly as many countries continue to deal with slower economic growth and elevated public spending.

Concerns over changes in debt markets

The report also highlighted concerns about recent changes in sovereign debt markets, particularly in the United States.

The IMF identified three main areas of risk:

• Shifting ownership of U.S. Treasury bonds
• Declining “convenience yield” of U.S. Treasuries
• Increased issuance of short-term government debt

The organisation said ownership of U.S. government debt has increasingly moved away from traditional financial institutions such as banks toward more price-sensitive investors, including hedge funds.

Treasury market volatility risk

The IMF warned that greater involvement by hedge funds and other fast-moving investors could increase market volatility.

It said even small changes in U.S. Treasury yields could trigger significant disruption if investors are forced to quickly sell their holdings to avoid losses.

The report added that instability in the U.S. Treasury market could have wider implications for the global financial system, given the central role of U.S. government debt in international markets.