IMF Warns Global Debt Crisis as U.S. Hits $39 Trillion

The International Monetary Fund is warning that America’s $39 trillion national debt is not just a domestic issue; it’s part of a growing global crisis.

At the launch of its Fiscal Monitor, IMF Fiscal Affairs Director Rodrigo Valdés said the world economy is being tested again amid the consequences of the war in the Middle East, with public finances stretched across many countries.

The IMF projects global public debt will reach 99% of world GDP by 2028, crossing the 100% threshold sooner than expected. In severe stress scenarios, debt levels could climb as high as 121% within three years.

In the United States, the deficit narrowed slightly last year, from nearly 8% of GDP to below 7%, partly due to tariff revenues. However, it is expected to rise again to around 7.5% and remain there. U.S. debt is projected to exceed 125% of GDP this year and could reach 142% by 2031.

Stabilizing the U.S. debt would require fiscal tightening of about 4 percentage points of GDP, one of the largest peacetime adjustments in modern history. The IMF also noted warning signs in bond markets, where U.S. Treasury yields are narrowing relative to those of other advanced economies.

Globally, the fiscal gap has widened compared to pre-COVID levels, driven by higher spending and lower revenues. Real interest rates are now about six percentage points higher than before the pandemic, increasing the burden of existing debt.

The report also highlights risks from the ongoing Middle East conflict, where rising fuel and food prices have pushed governments toward energy subsidies and tax cuts. The IMF warned that these measures are costly, distort markets, and can worsen global price pressures.

Artificial intelligence was identified as a potential game-changer. Officials say AI could boost productivity, improve tax systems, and enhance public services like health and education. However, it could also disrupt labour markets, increase inequality, and weaken traditional tax bases.

The IMF stressed that governments must adapt quickly, as uncertainty remains about how AI will impact economies and public finances.

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