Average public debt hit an “unprecedented” 97% of the world’s economy in 2020, driven largely by the U.S., which had the worst fiscal balance among Western advanced economies, according to an International Monetary Fund report released Wednesday.
The public debt surged 13 percentage points from pre-pandemic projections. It is expected to remain at 99% of the size of the global gross domestic product in 2021 and in the medium term, according to the IMF’s Fiscal Monitor report.
“The global public debt has reached record highs,” Vitor Gaspar, director of the IMF’s Fiscal Affairs Department, said in a press briefing. “It is very important to stress that that was the reflection of a decisive action by government to contain COVID-19 and its consequences.”
Last year, the U.S. had the second-worst net lending/borrowing-to-GDP ratio — negative 15.8% — among advanced economies, the IMF’s April Fiscal Monitor report said.
The U.S. ratio was slightly better than the negative 22.2% for Macao, the special administrative region on the southern coast of China.
The U.S. federal government ran a $3.1 trillion deficit in 2020 as Congress authorized trillions of dollars in spending to try to mitigate some of the coronavirus-related economic fallout.
Low interest rates and projected growth should help keep deficits from escalating completely out of control, though public debt will continue to increase in some countries because of factors such as aging and development needs, the report said.
Gita Gopinath, the IMF’s chief economist, said even as U.S. debt levels have soared — federal debt held by the public is now about $22 trillion — the costs of servicing the debt have declined thanks partly to an extended run of low interest rates.
She said countries’ fiscal activity should be properly targeted to their needs.
“But in terms of just the level of debt at this point, it’s not something we’re flagging as a major concern,” she said.
The federal government is on track to hit a deficit of $2.3 trillion for the budget year that ends Sept. 30, according to the Congressional Budget Office.
That projection for the 2021 fiscal year, however, came before Congress passed President Biden’s $1.9 trillion coronavirus relief package last month.
Annual deficits topped $1 trillion for several years after the 2008 economic crash but fell to about $440 billion by 2015.
Former President Barack Obama and a GOP-led House struck a deal to abide by discretionary spending caps that will be officially lifted for good starting in October.
The deficit ticked up to about $585 billion in 2016, before former President Donald Trump oversaw steady increases in red ink over his four years in office, culminating in last year’s coronavirus-related spending spree.
Mr. Trump said during the 2016 presidential campaign he had a plan to eradicate the entire U.S. national debt over the course of eight years.
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