April 24, (THEWILL) – Amid heightened concerns over imminent challenges which the prevailing global uncertainty would create, the International Monetary Fund (IMF) has urged Nigeria and other emerging countries to adopt urgent measures that would enable them to wade through the troubled waters.
The Fund in a report on Wednesday, April 23, 2025 emphasised that policymakers will need to deal with complex trade-offs between debt, slower growth, and new spending pressures as global debt soars.
Coming at a time when the world is confronted with the belligerent attitude of the United States President, Donald Trump, whose tariff wars escalate global economic uncertainty on a daily basis, the IMF observed that countries must guard against increasing risks from rising global debt.
“Major policy shifts underway have heightened global uncertainty,” the IMF said in the report.
It added, “The series of recent tariff announcements by the United States, and countermeasures by other countries have increased financial market volatility, weakened growth prospects, and increased risks.
“They come in the context of rising debt levels in many countries and already strained public finances, which in many cases will also need to accommodate new and permanent increases in spending, such as defense.”
Public debt surge
Observing that rising yields in major economies and widening spreads in emerging markets will further complicate the fiscal landscape, the Fund projects a wave of global debt increase in the near future.
“We project global public debt to increase by 2.8 percentage points this year—more than twice the estimates for 2024—pushing debt levels above 95 percent of gross domestic product.
“This upward trend is likely to continue, with public debt nearing 100 percent of GDP by the end of the decade, surpassing pandemic levels.
“These numbers are based on the World Economic Outlook reference projections, reflecting tariff announcements made between Feb. 1 and April 4. Amid substantial policy uncertainty and a shifting economic landscape, debt levels could rise even further,” the report stated.
Economies should realise that the environment faces critical trade-offs: balancing debt reduction, building buffers against uncertainties, and meeting urgent spending needs amid weaker growth prospects and higher financing costs.
However, it is important to note the flipside which is that navigating these complexities will be essential for fostering stability and growth.
Higher debt risks
The report noted that debt risks were already elevated under the circumstance as countries exposed to rising risks. Quoting Fiscal Monitor’s debt-at-risk, which utilizes data up to December 2024, the report revealed that in a severely adverse scenario global public debt could reach 117 percent of GDP by 2027.
“This would represent the highest level since World War II, exceeding reference projections by almost 20 percentage points. Risks to the fiscal outlook have further intensified.
“Debt levels may rise even further than the debt-at-risk estimates if revenues and economic output decline more significantly than current forecasts due to increased tariffs and weakened growth prospects,” the Fund stated.
Additionally, escalating geoeconomic uncertainties could heighten debt risks, driving up public debt through increased expenditures, particularly in defense.
The report noted that demands for fiscal support could also rise for those vulnerable to severe disruptions from trade shocks, pushing up spending.
“The Fiscal Monitor estimates that a significant rise in geoeconomic uncertainty could lead to a public debt increase of approximately 4.5 percent of GDP in the medium term.”
Fate of emerging economies
Tighter and more volatile financial conditions in the United States may have ripple effects on emerging markets and developing economies, leading to higher financing costs.
This is the dilemma of Nigeria as a developing economy which must balance the challenge of rebuilding its ailing economy and meeting its mounting debt servicing obligations.
This significantly impacts commodity prices, resulting in lower prices and heightened price volatility. Limited fiscal improvements may further heighten risks from rising interest rates, especially as many countries have substantial financing needs.
High interest rates could limit essential spending on social programs and public investments.
Additionally, reduced foreign aid, due to shifting priorities among advanced economies complicates financing for low-income countries.
Complex policy tradeoffs
In an uncertain and rapidly changing world, countries will need to first and foremost put their own fiscal house in order. This means implementing prudent policies within robust fiscal frameworks to build public confidence and help reduce uncertainty.
Fiscal policy should prioritize reducing public debt and establishing and widening buffers to address spending pressures and economic shocks.
This means finding the right balance between adjustment and supporting economic growth, tailored to each country’s unique situation, available resources, and overall economic conditions.
Countries with limited room in government budgets should implement gradual and credible consolidation plans and allow automatic stabilizers, like unemployment benefits, to work effectively. Any new spending needs should be offset by spending cuts elsewhere or new revenues.
For countries with greater fiscal flexibility, it is important to utilize available resources judiciously within well-defined medium-term plans.
Fiscal support for businesses and communities impacted by severe trade dislocations should be both temporary and targeted, with a strong emphasis on transparency and effective cost management.
More generally, advanced economies should tackle issues related to aging populations by reprioritizing spending, advancing pension and healthcare reforms, and broadening the tax base.
In emerging and developing economies, enhancing the tax system is crucial due to historically low revenues.
Low-income developing countries should stay the course on fiscal adjustments given financing challenges. Timely and orderly debt restructuring alongside such adjustments is essential for countries facing debt distress.
Additionally, fiscal policy, alongside other structural policies, should focus on enhancing potential growth. This can help ease challenging tradeoffs between growth and debt sustainability.
For instance, well-designed pensions and energy subsidy reforms can generate savings that can be used to support social programs and infrastructure investments.
As significant policy changes and heightened uncertainty reshape the global economic landscape, the fiscal outlook has worsened.
To effectively navigate these challenges, governments should focus on building public trust, ensuring fair taxation, and managing resources wisely.
The report notes that by doing so, they can foster resilience and promote sustainable growth in uncertain times. This calls for a huge sacrifice, no better option appears imminent.
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.
