The International Monetary Fund (IMF) has warned that global public debt is on course to reach levels last seen during World War II by 2028, as rising borrowing costs, geopolitical tensions and economic disruptions put additional pressure on government finances.
Gatekeepers News reports that the warning was contained in the IMF’s 2026 annual report covering the financial year ended April 30, 2026.
According to the fund, global public debt was already on a trajectory toward World War II-era levels before the outbreak of war in the Middle East, which has further intensified fiscal pressures through higher energy prices, tighter financial conditions and slower economic growth.
“Global public debt is rising again after briefly dipping from historic pandemic-era highs,” the IMF said.
“Debt was already on track to reach World War II–era levels by 2028, even before the outbreak of war in the Middle East.”
The IMF said the conflict had compounded existing fiscal challenges, particularly through a spike in energy prices and tighter financial conditions, while slowing economic growth.
It noted that the duration of the pressures remained uncertain, with energy-importing countries, especially low-income economies, facing significant exposure.
The fund also warned that higher borrowing costs were increasingly consuming resources that could otherwise be directed towards development priorities.
“Bond markets have reacted to these dynamics accordingly. Yields on long-term sovereign bonds have risen and become more volatile,” it said.
“In just three years, interest payments have increased by almost half—from about 2 to nearly 3 percent of GDP—trillions of dollars globally that cannot be spent on education, infrastructure, or other pressing priorities.”
The IMF said growing fiscal vulnerabilities were also creating risks for financial stability, including potential liquidity problems and disruptions in foreign exchange and other financial markets.
“Large borrowers are issuing more short-term debt to manage interest bills,” the report said.
“But this leaves them more exposed to sudden shifts in short-term funding conditions.”
It further warned that increased debt issuance by advanced economies could reduce the pool of funds available to other sovereign borrowers, while low-income countries continued to face declining development assistance.
IMF Calls for Fiscal Prioritisation
The IMF said governments would need to make difficult choices to manage higher energy costs while preserving sufficient fiscal space.
“The fiscal picture is highly worrisome across countries at all income levels,” the institution said.
For countries with sufficient fiscal space to provide discretionary energy subsidies, the IMF recommended that such measures should be temporary and targeted.
“Starting now and reaching into the medium term, rigorous fiscal prioritization is needed as demands on the public purse continue to grow,” it said.
The fund said reforms to unsustainable public pension systems and regressive fuel subsidies, although politically and socially difficult, would be necessary to free resources for debt reduction and investment.
“While permanent reforms to unsustainable public pensions and regressive fuel subsidies are difficult, they are essential to help free up funds to retire debt and make transformative investments.”
The IMF also called for stronger domestic revenue mobilisation and increased investment in digital infrastructure, education and social safety nets.
According to the institution, countries could strengthen their resilience to trade and energy disruptions while controlling overall public expenditure.
IMF Highlights AI Opportunities, Risks
The IMF also highlighted artificial intelligence (AI) as a potential driver of productivity and economic growth, while warning of possible disruption to labour and financial markets.
It said technology investment related to AI contributed an estimated 0.5 percentage point to US GDP growth in 2025.
The fund added that private-sector investment in AI could exceed $2 trillion globally in 2026, citing external estimates contained in the report.
“AI-driven productivity gains could accelerate across a broad range of industries and occupations,” the IMF said.
However, the institution warned that AI could displace workers and put downward pressure on wages in some parts of the labour market.
“Workers with AI skills are benefiting. So are people in low-skill roles such as restaurant staff who provide services to higher earners. Left out are middle-skilled workers whose jobs are highly exposed to automation,” it said.
The IMF said policymakers would need to support workers in acquiring new skills, help businesses realise potential productivity gains and strengthen cyber-resilience as AI adoption expands.
