🌎 Global Debt Crisis Looms: Why the G20 Is Making Public Debt Its Top Priority

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At the latest IMF and World Bank Annual Meetings, global finance leaders raised an urgent alarm: the world’s public debt is spiraling out of control. The governor of the South African Reserve Bank emphasized that the rising global debt burden poses a severe threat to international financial stability, and it will be the central focus of the upcoming G20 Finance Ministers’ summit.

According to new projections from the International Monetary Fund (IMF), global public debt is on track to surpass 100% of global GDP by 2029. This unprecedented figure underscores the mounting fiscal challenges facing both advanced and developing economies — and raises crucial questions about sustainability, monetary policy, and future economic resilience.

The Alarming Growth of Global Debt

Global debt has surged dramatically since the pandemic, reaching record levels above $315 trillion in 2025, according to data from the Institute of International Finance (IIF). Government borrowing exploded during COVID-19 to fund stimulus packages, healthcare systems, and recovery programs. However, even as growth recovered, fiscal deficits persisted.

Several factors are fueling this debt escalation:

Rising interest rates: Central banks worldwide tightened monetary policy to combat inflation, increasing debt-servicing costs.
Slower economic growth: Many economies are facing structural slowdowns, reducing fiscal revenues.
Higher social spending: Aging populations and welfare commitments are straining budgets.
Geopolitical tensions: Conflicts and supply chain realignments are prompting massive defense and energy investments.

This combination of high borrowing costs and weak growth has created what analysts call a “debt trap”, where countries borrow more just to service existing obligations.

IMF’s Warning: Debt-to-GDP to Exceed 100% by 2029

The IMF’s latest Fiscal Monitor Report paints a sobering picture: global public debt could exceed 100% of GDP by 2029 if current policies remain unchanged.

While advanced economies like the United States, Japan, and Italy already carry high debt ratios, the sharpest increases are expected among emerging and developing economies, where debt vulnerabilities have been magnified by currency depreciation and rising U.S. dollar rates.

For instance:

U.S. public debt is projected to reach nearly 130% of GDP within five years.
China’s debt continues to rise due to local government spending and property market interventions.
Low-income nations face acute debt distress, with over 50 countries now considered at high risk of default.

This trend has sparked concern among G20 policymakers, who view debt sustainability as a critical pillar of global financial stability.

The G20’s Renewed Focus on Debt Sustainability

The G20 Finance Ministers and Central Bank Governors are preparing to make global debt management a top priority in 2025. Their goal is to coordinate policies that can prevent a systemic crisis while ensuring growth in the developing world.

Key agenda items for the G20 include:

Debt Restructuring Frameworks: Reforming the Common Framework for Debt Treatments to accelerate negotiations for countries in distress.
Private Sector Involvement: Encouraging participation of private creditors to share the burden of restructuring.
Debt Transparency: Enhancing disclosure requirements for sovereign and private debt contracts to reduce hidden liabilities.
Fiscal Discipline: Promoting credible fiscal consolidation strategies among member nations.
Sustainable Financing: Expanding green and ESG-linked debt instruments to fund climate and development goals.

The G20’s approach signals a recognition that the global debt crisis is both an economic and political challenge, requiring cooperation among advanced and developing nations alike.

The Role of the IMF and World Bank

The IMF and World Bank are at the center of the global effort to stabilize debt dynamics. The IMF provides technical assistance, emergency lending, and fiscal surveillance, while the World Bank focuses on development financing and capacity building.

During the recent meetings, both institutions called for:

Increased concessional financing for low-income countries
Debt relief mechanisms for vulnerable economies
Policy reforms to strengthen domestic revenue mobilization
Stronger international coordination to prevent contagion

Kristalina Georgieva, Managing Director of the IMF, stated that “we are entering a new era of fiscal responsibility — one that demands tough decisions, innovation, and cooperation.”

How Debt Affects Global Financial Stability

The implications of rising global debt extend far beyond fiscal policy. Excessive public debt can undermine financial market confidence, trigger currency instability, and limit monetary policy flexibility.

Rising Borrowing Costs: Investors demand higher yields to compensate for perceived risk, pushing up interest rates even further.
Crowding Out Effect: Governments’ heavy borrowing absorbs financial resources that could otherwise support private sector investment.
Inflationary Pressures: Debt monetization, where central banks purchase government bonds, risks fueling long-term inflation.
Exchange Rate Volatility: Countries with dollar-denominated debt are exposed to currency depreciation risks.
Reduced Fiscal Space: High debt limits a government’s ability to respond to future crises.

If left unchecked, these dynamics could lead to financial fragmentation, particularly between high-income and low-income economies — a key concern for the G20.

Emerging Markets Under Pressure

Emerging economies are among the hardest hit by rising global interest rates and tighter financial conditions. Many countries now spend more on servicing debt than on health or education, raising fears of a new “lost decade” for development.

Examples include:

Ghana and Zambia, which have already defaulted and are undergoing IMF-led restructuring.
Egypt, Pakistan, and Argentina, struggling with currency depreciation and inflation above 30%.
Kenya and Nigeria, facing high external debt repayments amid falling export revenues.

The G20’s debt agenda will be crucial for these nations, as restructuring and access to affordable financing could determine their economic survival.

Advanced Economies Are Not Immune

While emerging markets face acute liquidity crises, advanced economies are not immune.
The United States, the European Union, and Japan are wrestling with ballooning debt-to-GDP ratios and widening fiscal deficits.

In the U.S., political gridlock has made fiscal consolidation nearly impossible. Rising defense spending, aging demographics, and persistent deficits are projected to keep federal debt near record highs.
Meanwhile, Japan’s debt is expected to exceed 260% of GDP, sustained only by near-zero interest rates.

This highlights a paradox: while advanced economies can borrow cheaply due to strong institutions and global demand for their currencies, their long-term debt trajectories remain unsustainable.

The Future of Global Debt Management

To avoid a full-scale crisis, economists and policymakers are pushing for innovative debt solutions. The future of debt sustainability may include:

Green and Sustainability-Linked Bonds: Redirecting debt issuance toward climate and development projects that enhance long-term resilience.
Digital Transparency Platforms: Using blockchain to improve tracking of sovereign debt and ensure transparency in repayments.
Debt-for-Climate Swaps: Allowing countries to reduce debt burdens in exchange for environmental commitments.
Reform of Global Tax Systems: To expand domestic revenues and reduce dependency on borrowing.
Strengthened Multilateral Cooperation: Especially between the IMF, G20, and private investors.

If implemented effectively, these reforms could restore trust in sovereign credit markets and stabilize global finance.

Expert Opinions: A Call for Fiscal Realism

Leading economists have warned that the global debt problem cannot be solved through monetary policy alone.
Fiscal realism — the willingness of governments to make hard spending and revenue decisions — is now essential.

According to economist Carmen Reinhart, co-author of This Time Is Different, “The world has entered an era where high debt is the new normal. The challenge is not eliminating debt, but managing it sustainably.”

Central banks, meanwhile, must strike a delicate balance between fighting inflation and avoiding financial instability. Any misstep could trigger capital flight or credit market disruptions.

The G20’s Role in Avoiding a Global Debt Meltdown

As the world’s 20 largest economies, the G20 nations collectively represent more than 80% of global GDP. Their coordinated policies will determine whether the current debt trajectory leads to a soft landing or systemic crisis.

Key proposals expected at the next summit include:

A Global Sovereign Debt Forum for enhanced coordination.
Expansion of IMF Special Drawing Rights (SDRs) for developing nations.
A Debt Transparency Charter endorsed by G20 members.
Stronger linkages between debt relief and climate finance initiatives.

If successful, these measures could reshape the global financial order and reduce the risk of cascading defaults.

Conclusion

The message from the IMF, World Bank, and G20 is clear: the global debt crisis is the defining economic challenge of our time.
With debt levels approaching historic highs, governments must act decisively to restore fiscal discipline, promote sustainable growth, and ensure financial stability.

The G20’s renewed focus on debt sustainability offers a glimmer of hope. Yet without concrete policy action, transparency, and cooperation between public and private sectors, the world may be heading toward another wave of financial turmoil.

In the end, the global debt debate is not just about numbers — it’s about the future credibility of global economic governance.

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