Global public debt is approaching 100% of global GDP and in a few years exceeds the post-pandemic level, when states quickly fell into debt to deal with the health crisis. Debt relative to GDP is the main indicator of a country’s solvency.
Growing budget deficits in some major economies have led governments to shorten the duration of bonds they issue to refinance debt in an effort to pay less interest in the short term. The danger, however, is that it makes them more vulnerable to sudden changes in investors’ perceptions of risk, which is increasing.
Another point is that, faced with increasing debts, investors might start demanding higher interest rates. Emerging countries like Brazil should impose even higher rates to attract investors who might migrate to other, safer countries.
At the end of the second quarter of this year, global public debt reached $101.3 trillion. In just one year, the debt increased by 9%, bringing the debt to the equivalent of 97.6% of global GDP, according to the IIF (Institute of International Finance, its acronym in English, which brings together 400 financial institutions).
The countries with the largest increases in debt are China, France, the United States, Germany, the United Kingdom and Japan. The situation in the United States is remarkable. Although it enjoys safe-haven status, the federal debt is expected to reach 145% of GDP by 2050 under current policies. The US Treasury estimates the country’s budget deficit for fiscal year 2025 at 5.9% of GDP.
In Brazil, public debt has increased by more than 6 percentage points in just over two and a half years of Lula’s (PT) government. The increase would reach 9 points by the end of 2026, which is considered unsustainable by many economists.
According to IMF (International Monetary Fund) criteria, Brazil’s gross public debt reached 89% of GDP at the end of the second quarter. It is the highest among emerging countries (72.7% on average), behind China with 93.4%. The IMF includes public bonds in the Central Bank’s portfolio to calculate debt, while the Brazilian body does not take them into account. By British Columbia’s standards, the debt was equivalent to 78.1% of GDP in September.
In common, all countries experiencing strong debt growth operate with large budget deficits (expenditures exceeding revenues). They are mainly motivated by public spending policies aimed at sustaining the pace of the economy (in the case of Brazil), by increasing health spending (due to the aging of the population) and by investments in defense.
The IIF points out that populist waves in several countries have prevented governments from adopting bitter measures to correct budgetary imbalances and reduce the deficit. The result is that the financing needs of several economies are greater today than during the pandemic, when global debt reached 105% of GDP. Then it receded – and now it’s growing again.
A few days ago, Pablo Hernández de Cos, president of the BIS (Bank for International Settlements, the Central Bank of Central Banks) he said he was distressed by the uncontrolled increase in sovereign debts and the way in which they are financed. Before the 2008 global crisis, the BIS had warned of the serious risk of private debt in several countries, but was not heeded.
According to the IMF’s Fiscal Monitor report, in an unfavorable scenario, global public debt could reach 117% of GDP in 2027, the highest level since the end of World War II, when countries became heavily indebted.
There is no precise indicator of percentage over time, as few countries have such long debt and national accounts series to allow the calculation. The estimate, however, is 132% of GDP for 1948.
“There is no sign of a significant reversal of the upward debt trend. Many countries continue to operate with persistent budget deficits,” says Marcello Estevão, managing director and chief economist of the IIF.
In Brazil’s case, he says, reductions in the BC base rate (Selic) will depend on how the fiscal accounts perform over the longer term. “Brazil needs a fiscal adjustment to ease the pressure of aggregate demand on price levels. Poor public debt dynamics imply a higher risk premium for debt buyers to agree to buy it,” he says.
Some economists considered heterodox argue that Brazil should not worry so much about its debt levels because other countries have higher debts, such as Japan (214.1% of GDP) and other advanced countries (112.5% ​​on average).
The opposite argument is that these economies are rich and are able to raise taxes on the population in the event of a fiscal emergency – which is difficult in the Brazilian case. Another point, according to economist Samuel Pessôa, of FGV-Ibre and columnist at Leafis that many of them have much higher savings rates than Brazil, leading governments to run deficits (and go into debt) to occupy the demand space that families and the private sector do not occupy.
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