- Global debt projected to exceed $100 trillion, or 93% of global GDP, by the end of 2024.
- Zimbabwe's public debt stands at approximately $21 billion, with China being its largest creditor outside the Paris Club.
- Fiscal adjustments necessary to mitigate debt risks, including entitlement reforms, reprioritizing expenditures, and increasing revenues.
Harare- The world is facing a daunting public debt crisis, with global debt projected to exceed US$100 trillion, or 93% of global GDP, by the end of this year according to the latest data by the International Montary Fund.
This represents a 10-percentage-point increase since 2019, pre-pandemic levels.
The October 2024 Fiscal Monitor warns that future debt levels may be even higher than projected, citing large spending pressures, optimism bias in debt projections, and sizable unidentified debt.
“The fiscal outlook of many countries might be worse than expected for three reasons: large spending pressures, optimism bias of debt projections, and sizable unidentified debt,” said the Fund.
The IMF is sounding the alarm about rising debt levels, just three weeks before the US presidential election. Both candidates, Donald Trump and Kamala Harris, have promised new tax breaks and spending that could add trillions to federal deficits.
According to the Committee for a Responsible Federal Budget (CRFB), Donald Trump's tax cut plans would add approximately $7.5 trillion in new debt over 10 years, more than twice the $3.5 trillion projected from Kamala Harris's plans.
Vice President Kamala Harris is running as the Democratic nominee.
Rising Debt Risks
The fiscal outlook for many countries is bleaker than expected. Factors contributing to this bleak outlook include aging populations, healthcare costs, green transition expenses, and defense spending due to growing geopolitical tensions.
Past experience suggests that debt projections tend to underestimate actual outcomes by a sizable margin, with realized debt-to-GDP ratios averaging 10 percentage points higher than projected.
US and China Debt Burden
The United States and China, the world's two largest economies, are significant contributors to the global debt crisis.
The US national debt has surpassed US$31 trillion, with the Congressional Budget Office projecting a further increase to US$50 trillion by 2030.
China's debt-to-GDP ratio is expected to reach 115% by 2025, driven by rising local government debt and state-owned enterprise borrowing.
These countries' debt burdens pose significant risks to global economic stability.
Fiscal Adjustments Necessary
To mitigate debt risks, IMF said countries must implement carefully designed fiscal policies protecting growth and vulnerable households.
A cumulative tightening of 3.8% of GDP over six years is necessary to stabilize debt. This can be achieved through entitlement reforms, reprioritizing expenditures, increasing revenues, strengthening social safety nets, and safeguarding public investment.
Zimbabwe's Debt Woes
Zimbabwe's public debt stands at approximately US$21 billion, as of June 2024 with external debt at US$12.3 billion while domestic debt at US$8.7 billion.
External debt is owed to bilateral and multilateral creditors with the latter accounting for US$3.1 billion. Out of this multi-lateral debt, US$681 is owed to AFDB, US$1.5 billion to World Bank and to the EIB US$427 million.
Zimbabwe owes China a significant US$2 billion, with the majority of these loans going towards energy projects, specifically the expansion of Kariba and Hwange power stations with its largest debt being towards Western creditors, the Paris Club, which totals US$4 billion.
However, outside of the Paris Club, China takes the top spot as Zimbabwe's biggest creditor, accounting for 95% of the country's non-Paris Club external debt.
In terms of Chinese loans across Africa, Zimbabwe ranks relatively low, making up only 1.7% of China's total loans to the continent between 2000 and 2023. To put this into perspective, China has given 1,306 loans worth a staggering US$182.3 billion to Africa during this period, with Zimbabwe receiving 28 loans totalling US$3 billion.
Equity Axis News
