IMF warns advanced economies must curb debt as bond yields surge

The International Monetary Fund warned that global public debt, now at its highest since World War II, is set to exceed 100% of world GDP, and that advanced economies have seen debt-to-GDP ratios soar since the 2008 crisis, the pandemic and recent wars. Era Dabla-Norris, deputy director of the IMF’s Fiscal Affairs department, said the surge in bond yields—about 110 basis points on longer maturities since late February—requires immediate fiscal consolidation, especially for highly indebted nations.

Higher inflation expectations, driven by soaring energy prices from the Iran conflict, have forced central banks to raise rates, which in turn lifts government borrowing costs, particularly for short-term debt. The IMF’s research shows average interest payments could rise from 2.3% of GDP in 2021 to 3.7% in 2031 globally, and from roughly 2.8% to 5.7% of GDP in the United States, matching projected Social Security spending. Dabla-Norris warned that rising yields in advanced economies could tighten global financial conditions and affect emerging markets, emphasizing the need for clear communication about the trade-offs of fiscal tightening.