From China to Spain: these will be the most indebted countries in the world at the beginning of 2030

It is a fact: for the remainder of the decade, countries will continue to struggle to bring their debt level to acceptable limits. Even when inflation and the rest of the economic outlook are stabilizing, governments around the world will have to make an effort in the medium term if they want to have healthy public accounts, as the International Monetary Fund warned this week in its new report on the prospects of the global economy. Their calculations suggest that global liabilities will increase consecutively year after year until reaching 99% of the Gross Domestic Product (GDP) in 2029, driven by China and the United States, where it will exceed the historical peaks recorded during the toughest years of the health crisis. This is exactly the opposite path to that suggested by international organizations, which have been emphasizing for years the need to make adjustments to have sustainable finances.

Sudan (284%), Japan (251%) and Singapore (165%) will accumulate, according to estimates, the largest gross public debts on the planet at the beginning of 2030. Just after Italy appears, with a liability that will account for 144% of its GDP . Also among the list of the most indebted are Greece, France and Spain, which occupies thirteenth position with a rate of 104% at the end of this decade. If these projections materialize, the maximum that was reached during the covid crisis would end up being a very distant memory, but in no case would they resemble the levels prior to the pandemic. The encouraging news is that even so, Spain would be one of the few States that would maintain the downward trend, unlike the global trend.

IMF data show that in 2021, the planet registered a notable reduction in the level of deficit and public debt—which in that year was barely 91% of GDP. But a year later the trend changed. The organization led by Kristalina Georgieva attributes this to the gradual rate increases, which raised the level of spending due to the interest generated. Added to this was the disbursement made by governments to alleviate the harmful effects of the pandemic and the inflation crisis, particularly due to energy price shocks. Many economies temporarily reduced taxes and social contributions, while increasing social programs, wages and investments in industry.

All these expenses, which translate into the country's debt, were only partially offset by the increase in income derived from inflation and in the case of Spain, from temporary taxes on the energy sector and banking. However, they have not been sufficient to offset the fiscal balance generated, which is why, in the Fund's opinion, “progress towards the normalization of fiscal policies” has been halted. The most worrying cases are China and the United States, where public debt will almost double by 2053. How these two giants manage their fiscal policies could “have profound effects on the global economy and pose significant risks to baseline fiscal projections.” in other economies,” according to experts.

In other latitudes, liabilities have also increased. Emerging market debt grew three percentage points to 58% of GDP in 2023 (on average) and is estimated to remain that way in the coming years, with some exceptions. In South Africa, for example, the debt-to-GDP ratio is expected to rise by 12 percentage points, reflecting persistently weak growth and relatively high interest rates, reaching almost 86% of GDP in 2029. Where the ratio has improved is in the so-called advanced economies. There, public debt fell by just over two percentage points—to around 102% of GDP—in 2023. In addition, it is expected to decrease little by little until reaching 100% at the end of the decade.

Benefits of tax adjustment

The fiscal adjustment would serve, in the opinion of analysts, to improve reserves at a time when medium-term growth prospects are slowing and interest rates remain very high. In addition, it would make it easier for inflation to reach the last mile of moderation. The task seems difficult: on the one hand, the aid implemented in the inflation crisis must be cut short and reforms are needed to contain the growing pressures on spending—particularly in older countries—while promoting the green transition. According to the Fund, “a well-designed fiscal policy mix that supports innovation in sectors with the highest spillovers and emphasizes public funding for research could boost long-term growth of economies on the technological frontier.”

The agency specifies that emerging and developing economies have significant room to increase revenues by improving tax systems, expanding tax bases and improving institutional capacity. This could also help pay for the strategic public investments needed to facilitate the diffusion of green and digital technologies.

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