The International Monetary Fund released a new fiscal monitor report at its annual meeting in Bangkok, cautioning that increased sovereign bond yields have made it harder for governments to manage their debts. The IMF stressed that the longer countries delay taking action to address their fiscal challenges, the more difficult their adjustments will become.
Bond yields for G7 countries have climbed significantly since February, increasing by more than 1 percentage point to their highest level in nearly two decades, according to the IMF. Global public debt is expected to surpass 100 percent of global GDP for the first time since the immediate aftermath of World War II, adding to concerns about the impact of rising borrowing costs.
The consequences are already visible. In the United States, interest payments on government debt are projected to grow from roughly 2.8 percent of GDP before the pandemic to 5.7 percent by 2031, matching expected Social Security spending. The situation is even more severe for low-income countries, where interest payments already consume over 15 percent of tax revenues.
Higher borrowing costs in major economies can spread to other countries, worsening their debt positions. The IMF warned that spending pressures and anticipated large bond issuances in coming years are pushing yields upward, creating difficult choices for policymakers.