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The fallout from US President Donald Trump’s tariff policies risks raising government debt around the world to levels not seen since the end of the second world war, the IMF’s most senior official for fiscal policy has warned.
Vítor Gaspar, the director of the IMF’s fiscal affairs department, said the fund’s current worst-case scenario — with public debt rising from 92.3 per cent of global output to 117 per cent by 2027 — could even prove too optimistic if trade tensions intensify.
“In 2025, uncertainty sharply rose, trade and geoeconomic uncertainties escalated, financing conditions tightened and financial market volatility increased, and spending pressures have intensified,” Gaspar told the Financial Times. He added that risks were now “more considerable” than the fund’s projections, which were calculated towards the end of last year.
The IMF said in its latest Fiscal Outlook, published on Wednesday, that a 117 per cent global debt-to-GDP ratio would be the highest since the aftermath of the second world war. The ratio hit an all-time high in 1946 of 150 per cent, before declining sharply over the 1950s and 1960s.
Most of Trump’s “reciprocal” tariffs — first unveiled on April 2 — are now on pause as the US and its trade partners try to negotiate deals over the coming months that will lower the levies.
US stocks rallied on Tuesday after US Treasury secretary Scott Bessent said a trade war with China — which remains subject to tariffs of 145 per cent, and which has retaliated with duties on US imports of 125 per cent — was “unsustainable”. Trump echoed Bessent’s remarks later in the day, saying the tariffs on China would “come down substantially”.
Gaspar flagged that the global public debt burden was already “high, rising and risky” in 2024, when it climbed above the $100tn mark for the first time. This year “very high uncertainty” over trade policies meant countries “should double down” on efforts to put their “fiscal house in order”, he said.
The remarks came as the IMF published forecasts suggesting countries representing 75 per cent of global GDP would see their debt burdens rise in 2025, compared with the previous year. This included the US, China, Germany, France, Italy and the UK.
The fund’s baseline projections were similar to those issued in the previous October fiscal monitor, showing global debt to GDP levels topping 100 per cent by the end of the decade — surpassing a pre-pandemic peak. However it noted that “risks of even higher debt levels have increased”.
Gaspar welcomed the new German government’s plans to loosen its debt brake as a “very significant” step that would allow Germany to increase public investments on infrastructure and other priorities.
“This gives flexibility to a country that has low debt levels, compared with the standard of advanced economies, to spend more,” he said, adding that it was not expected to threaten the finances of Europe’s largest economy.
He also praised the French authorities for “very promising” developments in passing their budgets. “It is a move in the right direction,” said Gaspar. “It is clear from developments in markets that the approval of the budget did reduce uncertainty.”
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