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The fallout from US President Donald Trump’s tariff policies risks raising government debt world wide to levels not seen for the reason that 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 world 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 tip of last 12 months.
The IMF said in its latest Fiscal Outlook, published on Wednesday, that a 117 per cent global debt-to-GDP ratio can be the very best for the reason that aftermath of the second world war. The ratio hit an all-time high in 1946 of 150 per cent, before declining sharply over the Fifties and Nineteen Sixties.
Most of Trump’s “reciprocal” tariffs — first unveiled on April 2 — at the moment are on pause because the US and its trade partners try to barter deals over the approaching months that can lower the levies.
US stocks rallied on Tuesday after US Treasury secretary Scott Bessent said a trade war with China — which stays 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 within the day, saying the tariffs on China would “come down substantially”.
Gaspar flagged that the worldwide public debt burden was already “high, rising and dangerous” in 2024, when it climbed above the $100tn mark for the primary time. This 12 months “very high uncertainty” over trade policies meant countries “should double down” on efforts to place their “fiscal house so as”, he said.
The remarks got here because the IMF published forecasts suggesting countries representing 75 per cent of world GDP would see their debt burdens rise in 2025, compared with the previous 12 months. This included the US, China, Germany, France, Italy and the UK.
The fund’s baseline projections were just like those issued within the previous October fiscal monitor, showing global debt to GDP levels topping 100 per cent by the tip of the last decade — surpassing a pre-pandemic peak. Nevertheless it noted that “risks of even higher debt levels have increased”.
Gaspar welcomed the brand new German government’s plans to loosen its debt brake as a “very significant” step that might allow Germany to extend public investments on infrastructure and other priorities.
“This offers flexibility to a rustic that has low debt levels, compared with the usual of advanced economies, to spend more,” he said, adding that it was not expected to threaten the funds of Europe’s largest economy.
He also praised the French authorities for “very promising” developments in passing their budgets. “It’s a move in the best direction,” said Gaspar. “It is evident from developments in markets that the approval of the budget did reduce uncertainty.”
