Global public debt is approaching its highest point since the Second World War and is projected to surpass 100% of GDP, with advanced economies identified as the primary drivers of this trend, according to International Monetary Fund Managing Director Kristalina Georgieva.
For nearly two decades, governments benefited from a favorable environment where interest rates remained lower than economic growth rates. However, Georgieva noted that the current shift toward higher interest rates has effectively ended this period of relative ease. The gap between interest costs and growth is now much less advantageous and is expected to widen further, making it unlikely that countries can reduce their debt-to-GDP ratios through growth alone in the near term.
The financial pressure is already evident across Europe. Yield spreads over German bunds are expanding not only in France and Italy but also in nations such as Ireland and Portugal, which had previously made significant progress in reducing debt and deficits following the euro-area crisis.
Georgieva emphasized that a series of recent shocks have significantly inflated public debt levels, while fiscal deficits in most countries remain above pre-pandemic averages. She stated that fiscal space is in urgent need of replenishment.
European markets are already reacting. Ireland and Portugal losing ground is a worrying sign for the entire eurozone stability.
This is alarming. How can governments invest in AI infrastructure when they are drowning in debt service payments?