IMF paints “worse than expected” picture of global debt outlook, passing USD 100 tn mark in 2024

Crossing the USD 100 tn mark: Global public debt is on track to surpass USD 100 tn by year’s end, representing 93% of global GDP, the IMF said in a blog ahead of the full release of its October 2024 Fiscal Monitor report, which is due to be published in full next week. Public debt is also set to exceed 100% by 2030, 10 percentage points above 2019 levels before the pandemic ushered in higher fiscal spending.

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Worst-case scenario: Slower economic growth, tighter borrowing conditions, fiscal “slippages,” and economic and political uncertainty could see global debt soaring to 115% of global GDP within three years, the IMF says. Higher uncertainty in major economies such as the US could also create ripple effects increasing borrowing costs for more vulnerable countries.

Driving the rise in fiscal debt: The IMF warns that, although two-thirds of countries are expected to see their public debt levels “stabilize or decline,” the debt outlook for many others may be “worse than expected.” Budget demands due to aging populations and healthcare needs, the green transition, and geopolitical uncertainty have “tilted” the political discourse towards greater fiscal spending, placing added pressures on state coffers. Countries also tend to be overly optimistic with regards to their debt forecasts and consistently underestimate future debt burdens.

Also a culprit? Unidentified debt: Countries are also facing a pileup of what the IMF calls “unidentified debt,” which the multilateral lender says has historically stood at 1-1.5% of GDP on average. That rate “increases sharply during periods of financial stress,” the IMF notes. Unidentified debt “stems from contingent liabilities and fiscal risks government face, of which most are related to losses in state-owned enterprises.”

REMEMBER- Emerging markets are also facing a wall of debt that many could struggle to repay, with a handful of countries at risk of defaulting over the next decade, S&P Global has said.

As inflation and interest rates come down, it’s time to get moving on fiscal improvements: Cooling inflation and the start of the global monetary easing cycle mean that economies are in a better position today to absorb adverse effects from budget cuts, the IMF says. Economies should make use of this window to roll out budget cuts while seeking a “judicious mix of people- and growth-focused fiscal measures” that balance the needs of low income individuals and economic output and growth, the multilateral lender said. Most economies will have to cut their budgets by about 3.8% of GDP over the next six years to see improvement, with China and the US requiring stronger measures to stabilize public debt.

MARKETS THIS MORNING-

Asian markets are down in early trading this morning, mirroring declines yesterday on Wall Street. The Nikkei is down the most (-2.0%), but the Hang Seng, Shanghai Composite, and ASX are all in the red.

Dow, S&P, and Nasdaq futures are little changed in overnight trading, while the FTSE 100, Euro Stoxx 50, DAX, and CAC 40 all look set to open in the red later this morning.

THE CLOSING BELL-

The DFM rose 0.3% yesterday on turnover of AED 360.9 mn. The index is up 10.1% YTD.

In the green: Agility The Public Warehousing Company (+4.3%), Chimera S&P UAE Shariah ETF (+3.1%) and Al Salam Sudan (+2.8%).

In the red: Emirates Reem Investments Company (-9.9%), Emirates Investment Bank (-7.4%) and Takaful Emarat (-6.7%).

Over on the ADX, the index fell 0.2% on turnover of AED 1.07 bn. Meanwhile Nasdaq Dubai closed up 0.4%.

CORPORATE ACTIONS-

Sharjah Islamic Bank amends shareholder policy: Sharjah Islamic Bank updated its shareholder policy, broadening an exemption that once applied solely to the Sharjah government, according to an ADX disclosure (pdf). The change now permits entities affiliated with the Sharjah government and the Sheikh Sultan bin Muhammed bin Saqr Al Qasimi Endowment to hold more than 3% of the bank’s capital.