April 24, (THEWILL) – A publication, ‘Fiscal Policy Under Uncertainty’, by the International Monetary Fund (IMF), was unveiled on Wednesday, April 23, 2025. It highlights the challenge of wading through the complexities of a troubled global economy compounded by rising global debt.
Chapter one of the publication emphasizes that fiscal outlook worsens amid high uncertainty, as elevated uncertainty and significant policy shifts are reshaping economic and fiscal outlooks.
According to the publication, major tariff announcements by the United States, countermeasures by other countries, and exceptionally high levels of policy uncertainty, are contributing to worsening prospects and heightened risks. It noted that progress with disinflation appears to have stalled in many countries; growth prospects, already disappointing, have been significantly downgraded.
With sufficient illustration in graphs, tables, and charts, it showed that on the fiscal front, many countries were already grappling with stretched budgets and rising public debt burdens occasioned by the uncertainties in the global economic order.
Increased economic and policy uncertainty, rising yields in key economies, and widening spreads in emerging markets coupled with higher defense spending—particularly in Europe—and a challenging foreign aid landscape, are now further complicating the fiscal outlook.
In this volatile landscape, countries will need to first and foremost put their own fiscal house in order.
A gradual fiscal adjustment within a credible medium-term framework is crucial for most countries to reduce debt, build fiscal buffers against uncertainties, accommodate priority spending, and improve long-term growth prospects.”
Fiscal deterioration situation
With appropriate illustration, the publication emphasised that the global fiscal situation deteriorated in 2024, but with notable divergence across countries. The global fiscal deficit increased by 0.1 percentage point, reaching an average of 5.1 percent of GDP, whereas public debt rose by 1 percentage point to 92.3 percent of GDP. This reflected ongoing legacies of high subsidies, social benefits, other current spending from the COVID-19 pandemic, and rising net interest expenses.
It showed that compounding these challenges, 53 percent of low-income developing countries and 23 percent of emerging markets were at high risk of debt distress or in debt distress.
Forecasts amid uncertainty
Economic forecasts are surrounded by high uncertainty mostly due to the swift escalation of trade tensions and policy ambiguity. Based on the April 2025 World Economic Outlook “reference point” forecast, using information available as of April 4, 2025, global public debt is projected to rise by an additional 2.8 percentage points of GDP in 2025, approaching 100 percent of GDP in 2030 and surpassing the pandemic peak. Major economies, such as Brazil, China, France, South Africa, the United Kingdom, and the United States, are key contributors to the increase in global public debt. Gross financing needs are expected to remain elevated across many countries.
Risks of even higher debt levels have increased due to tighter and more volatile financial conditions and heightened economic uncertainty.
Recent Fiscal Developments, Outlook
Budget deficits and debt levels in many countries remained elevated in 2024, diminishing room for budgetary maneuver, albeit with considerable heterogeneity across countries.
Based on the April 2025 World Economic Outlook “reference point” forecast using information available as of April 4, 2025, the fiscal outlook is influenced by three main factors: tariffs, uncertainty, and financial conditions. Tariffs imposed by importing countries create a negative supply shock, resulting in higher prices and reduced output and productivity in the medium term.
It shows that, conversely, exporting countries experience a negative demand shock from these tariffs, leading to a short-term decline in demand and downward price pressures. Retaliatory tariffs from exporting countries have the opposite effect.
Recent tariff announcements have increased uncertainty and contributed to tighter, more volatile financial conditions, leading to higher borrowing costs. The interplay between demand and supply effects will also influence exchange rate movements against trading partners. Moreover, tariffs directly impact import revenues. While higher tariffs may yield increased short-term revenue, this effect is likely to wane as higher prices lead to declining imports and output.
Case studies
Case studies covering the UK, the US, China, and others were presented to illustrate the gravity of policymaking under uncertainty.
The publication highlighted two latest economies in explaining the divergence from other income groups: United States and China. The publication revealed that fiscal deficits and debt in the two largest global economies, the United States and China, continue to critically shape global fiscal developments.
United States
In 2024, the general government fiscal deficit in the United States remained broadly unchanged and elevated at 7.3 percent of GDP. While the primary fiscal deficit declined from 3.9 to 3.6 percent of GDP, the increase in net interest expenses offsets this improvement, through both higher interest rates and initial debt levels. Revenue increased by 0.4 percentage point of GDP, partly owing to postponed tax deadlines from the previous year for some disaster-affected taxpayers.
Primary spending as a share of GDP remained broadly unchanged, in part resulting from a pause in education spending on student loan cancellations, which is currently in litigation, and the phaseout of pandemic-related income-security programs. With both revenue and primary spending as a share of GDP nearly back to pre-pandemic levels, the 2024 fiscal deficit exceeded them primarily because of interest expense, which increased by 1.4 percentage points of GDP compared to 2019.
Nominal yields on 10-year US Treasury bonds surged to about 4.75 percent at the start of 2025—the highest since November 2023 as the Federal Reserve signaled a slower pace of rate cuts as a result of strong economic data, stickier inflation, and rising fiscal policy uncertainty.
Since then, the upward trend has reversed, and nominal yields fell to 4.2 percent at the end of March, driven largely by the term premium amid fiscal and debt issuance strategy.
China
China’s fiscal deficit increased by 0.6 percentage point of GDP in 2024, reaching the high level of 7.3 percent.
General government revenues fell by 0.4 percent of GDP, primarily because of a 3.4 percent decline in tax revenues. Moreover, land sales dropped by 22.4 percent year over year owing to the depressed property market.
This decline was partially offset by a 25.4 percent increase in nontax revenues, likely driven by contributions from state-owned enterprises and enhanced local government efforts to collect fines and fees.
Budget execution was slow until last September 2024, with local government financial vehicles facing financing limitations. Notably, net bond issuance from these vehicles turned negative since the last quarter of 2023, despite low spreads, likely because the central government imposed stricter borrowing constraints.
Since September 2024, government agencies have announced various policies to support the economy, including a multiyear plan to address local governments’ hidden debt.
China plans to swap 10 trillion yuan of off-budget debt with official debt from 2024 to 2028, which will raise the official debt-to-GDP ratio while alleviating some financing pressures on local governments.
Consequently, budget execution saw an uptick in the last quarter of 2024.
China’s fiscal stance is expansionary in 2025 with the deficit projected to further increase to 8.6 percent of GDP. This increase is driven by lower nontax revenues and policies announced in the 2025 budget aimed at modestly boosting consumption and strengthening social safety nets. The (on-budget) fiscal expansion outlined in the 2025 budget is a positive step, as it will help support the economy and lower the current account surplus. Although recent reforms to increase the retirement age may alleviate some spending pressures, elevated deficits are expected to push public debt to 116 percent of GDP by 2030, based on its augmented definition. However, the outlook faces unusually high uncertainty.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
