Introduction
The International Monetary Fund (‘IMF’) has warned that global sovereign debt may climb to a figure in excess of 100% of Gross Domestic Product (‘GDP’) as soon as 2029 and – at worst – approximately 132%. If the worst forecasts play out, the figures could be worse than the financial context after the Second World War (approximately 132%), owing to the impacts of COVID and geopolitical conflict (e.g., the Russian invasion of Ukraine) especially. Sovereign debt too often appears fictitious, as money without consequence. However, beyond the raw statistics, the implications are grave. Debt of this magnitude renders the debt itself far less sustainable, leaves states vulnerable to ‘severe adverse shocks’, and aggravates concern that the 2010-2012 European debt crisis (so-termed ‘doom loop’) may repeat itself.
Winners, losers, and losers
Naturally, the risks are not distributed equally, and not all economies are equal. Among the most severe offenders stand the UK, France, China, Japan, the US, and Canada. However, as highlighted by Reuters, the IMF understands the dangers to these states as relatively limited, owing to their ‘deep sovereign bond markets’. Reflecting global economic hierarchies, it is the ‘emerging markets’ that face the most concerning power imbalances with lenders and vulnerability.
Yet, the language of ‘winners’ and ‘losers’ may be a dead end. It cannot be forgotten that debt demands repayment, and, in the event of repayment difficulties, the restructuring compromise often generates costs for all parties.
A silver bullet or a ‘runaway train’?
The proposed solutions can appear at once both a silver bullet and hopelessly idealistic. On the one hand, the IMF recommends reductions in public spending and ‘fiscal buffers’. On the other hand, there are strong institutional explanations for why such ‘perfect’ solutions have not proved to be so perfect. The short-term thinking stimulated by democratic election cycles and the difficult political task of selling increased taxation/reduced public spending to electorates are near-irresistible deterrents.
With arguably more promise, the IMF has recommended a prioritisation of development of human capital, reallocating GDP appropriately. Similarly, proactive policy may well be decisive, as ‘pre-emptive restructurings’ often reduce the damage compared to the restructurings closer to or beyond crisis point.
Regardless, the threat posed by sovereign debt may remain hidden in plain sight until states are forced to stare breaking point in the face. If so, the numbers, the risk, and the frayed nerves of the IMF may only get worse.
Writer – Luca Povoas
Editor – Imran Chaudhri
Sources: Vox EU/CEPR (Xiang Fang, Bryan Hardy, Karen Lewis) (2024); Reuters (2025); Reuters (Andrea Shalal) (2025); City AM (Ali Lyon) (2025); IMF (2025); IMF (2022).
