Global government debt has reached the size of the world economy, and if not urgently addressed, rising debt costs and economic instability could lead to an unavoidable crisis.
The world’s governments now face a debt of staggering USD100 trillion—almost the same as the entire global economy.
The International Monetary Fund (IMF) warns that global public debt could rise to 115% of GDP in three years—about 20 percentage points higher than expected. Experts worry this growing debt could threaten long-term economic stability worldwide.
Governments have borrowed heavily in recent years to help recover from crises like the 2008 financial crash and the COVID-19 pandemic. But now, rising interest rates and mounting debt levels are making it harder for countries to manage their finances. If governments don’t carefully manage budget cuts, it could slow the economy, hurt vulnerable people, and increase inequality.
“We need an absolute pivot, because this is not business as usual. It is worse than you think,” warned Gita Gopinath, the IMF’s Deputy Chief, speaking at the World Economic Forum in Davos 2025. Her words reflect the growing anxiety over the global debt situation.
The real worry isn’t just debt itself, but the rising cost of managing it. Higher interest rates make it harder for governments to repay loans and fund welfare programs. “3.3 billion people live in countries spending more on debt payments than on education or health,” says UN Trade Chief Rebecca Grynspan at Davos. “Growth and development cannot happen.”
This means that governments need to spend more money just to pay off interest, which puts even more pressure on their finances.
For example, interest payments in many countries are now higher than defence spending, with some nations seeing their debt costs skyrocket. In fact, about 40% of all government and corporate bonds will mature by 2027, meaning governments will soon need to refinance at potentially higher interest rates, making the debt burden even heavier.
Governments have been borrowing heavily in recent years, especially during times of crisis. In 2024 alone, global borrowing reached $25 trillion, three times higher than in 2007. And next year, borrowing by governments in Organisation for Economic Co-operation and Development (OECD) countries is expected to hit $17 trillion.
A study of over 30 countries shows that 40% of hidden debt comes from financial risks governments take, mainly due to losses in government-owned companies. On average, hidden debt makes up about 1 to 1.5% of a country’s economy, but it rises sharply during financial crises.
The biggest worry is that even though government debt levels are expected to stabilise in some countries, they may be higher than expected due to unforeseen crises.
In fact, experts say the actual level of global debt could be 10% higher than projected. This is because many debt forecasts don’t account for sudden economic shocks, like financial crashes or pandemics, which can quickly push debt to unmanageable levels.
One of the most serious concerns is the risk of a “debt death spiral.” Billionaire investor Ray Dalio believes that the UK may be heading down this path. In a recent interview to a financial daily in the UK, he explained that the UK might soon have to borrow more just to cover its rising interest payments. “It will either require more borrowing to service the debt that will have to be serviced, squeeze out other spending, or require more taxes,” says Dalio.
The IMF’s analysis shows that if things go wrong, global public debt could soar to 115% of global GDP in just a few years, making economic challenges even worse. This could lead to slower economic growth, less investment, and more instability.
To manage rising debt levels, countries will need to make tough decisions about spending and borrowing. The IMF suggests that governments may need to tighten their budgets by around 3.8% of GDP over the next few years to prevent the debt from spiralling out of control.
However, cutting government spending too aggressively could have negative effects. “The key challenge is balancing fiscal discipline with economic growth and social equity,” says Harvard economist Kenneth Rogoff. If governments cut too much from social programs or public investment, it could hurt the economy and increase inequality.
Emerging markets can improve tax collection, while advanced economies must rethink benefits and find new revenue sources. Despite challenges, debt markets fund key projects like green energy. To keep investor trust, governments must manage debt wisely. Acting early can help prevent a crisis and ensure global stability.
