The International Monetary Fund (IMF) warns that governments around the world will soon have to make hard choices as global debt explodes.
In a new piece, the IMF’s Fiscal Affairs Department director Rodrigo Valdes and deputy director Era Dabla-Norris say global public debt has been rising steadily prior to Covid and has exploded as countries borrowed heavily to deal with the pandemic.
While the response averted a deeper catastrophe, the authors say countries are now facing a world where borrowing is no longer cheap.
“Global public debt climbed to 93.9 percent of GDP in 2025 and is on track to breach 100 percent by 2028—levels never seen in peacetime—marking a turning point for economic policy and politics. Meanwhile, long-term structural forces—aging populations, climate change, rising social demands, and, for low-income countries, declining aid flows and persistently high borrowing costs—continue to bear down on budgets even as emerging geopolitical tensions exert pressure to spend on defense and industrial policy.”
According to Valdes and Dabla-Norris, borrowing costs have doubled or tripled following the end of ultra-low interest rates. In the US, the IMF executives say net interest payments have soared to 4.2% of GDP, surpassing the country’s defense budget.
The IMF executives warn that the era of easy choices is now over, and governments around the world will soon have to make tough decisions.
“Every dollar a government borrows without matching revenue implies higher taxes or lower spending in the future, at least to cover the additional interest the new debt generates. Beyond a certain point, more borrowing forces painful decisions—through austerity, inflation, financial repression, or even default. The question becomes unavoidable: With limited fiscal space, what will be the trade-offs, and who will bear the cost?”
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