According to the IMF, the pandemic response by governments around the world will drive up global public debt to a new record high. In aggregate, governments around the world have already committed US$ 11.7 trillion to all kinds of support, relief, and containment measures. This brings global public debt close to 100% of global output this year, and even more spending is on the way.

Historical Patterns of General Government Debt (Percent of GDP)

Source: IMF, Historical Public Debt Database; IMF, World Economic Outlook database; Maddison Database Project; and IMF staff calculations. Note: The aggregate public-debt-to-GDP series for advanced economies and emerging market economies is based on a constant sample of 25 and 27 countries, respectively, weighted by GDP in purchasing-power-parity terms. WWI = World War I; WWII = World War II.

The recent IMF report on global debt forcefully confirms our estimates and warnings in ,the ,,BFI New Era Special Report. In our Report, we also mentioned the growing importance (and threat) of financial repression. You need to prepare for this threat in your wealth planning and risk management strategy.

Total Public and Private Debt, 2002 – 2019 (Percent of GDP)

Source: IMF, Global Debt Database. / Note: G20 = Group of Twenty.

Governments have committed $11.7 trillion, or 12% of global output, as of Sept. 11, the IMF said in its semiannual ,Fiscal Monitor report. That will drive up budget deficits by 9% of gross domestic product on average this year, with cumulative public debt approaching 100% of global GDP.

The government measures driving the debt levels to new highs include direct spending, tax cuts, loans and guarantees and direct equity injections. Central banks, in addition to cutting interest rates, have also provided $7.5 trillion in stimulus with purchases of government and corporate securities.

You cannot spend your way out of recession or borrow you way out of debt. ~ Daniel Hannan

The world economy is forecast to contract by 4.4% this year, the IMF said, not as much as the 5.2% drop it projected in June, but still the most severe downturn since the Great Depression. World output will grow by 5.2% in 2021, down from an earlier estimate of 5.4%. It is worth pointing out that past IMF growth projections have regularly proved to be too optimistic. Chances are, this will be the case again. In the report, IMF economists did warn that essential support to provide short-term aid does have longer-term implications. Well, we can certainly agree on that...

Also, in contrast to advanced economies, many emerging markets, particularly lower income developing nations, have limited ability to increase spending because of high levels of indebtedness that preceded the pandemic. They will need help in the form of debt restructuring or relief, the IMF said.

The IMF expects 100 million to 110 million people around the world to fall into extreme poverty as a result of the downturn, reversing the decades of gains. It called on policy makers to focus post-pandemic policies on “tackling poverty and inequality to ensure social peace and sustainable growth.”

The Fiscal Monitor is prepared twice a year by the IMF’s Fiscal Affairs Department. Its projections are based on the same database used for the World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR). The fiscal projections for individual countries have been prepared by IMF desk economists, and, in line with the WEO guidelines, assume that announced policies will be implemented.

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