Automatic translation: Originally published in Finnish 04/06/2026, 04:53 GMT. Give feedback here.

In economic history, states have stretched their borrowing capacity to the extreme, usually as a result of major wars or global catastrophes. Now, we are once again in a situation where debt levels are rising. This time, however, the reason is not a single major war, but a combination of structural deficits, high interest rates, and geopolitical shocks.

IMF estimates for government debt development in different countries

Public surplus/deficit, % of GDP. Estimates: IMF.

The International Monetary Fund's (IMF) Fiscal Monitor report, published in April, paints a grim picture of the debt outlook: global public debt is inevitably approaching 100% of the world's gross domestic product. As bond yields rise simultaneously, the fiscal sustainability of states has once again become a theme in the markets.

According to the latest estimates, the global debt-to-GDP ratio will reach the 100% mark as early as 2029. The development has been faster than anticipated: in 2025, debt was still almost 94%, and it is now growing at an annual rate of about two percentage points, according to the IMF. The situation has deteriorated significantly even compared to the 2025 estimates, which indicates an erosion of fiscal discipline.

The "economic policy safety margin" has been exhausted

One of the report's most alarming findings concerns the global fiscal gap. This metric indicates the difference between the actual primary deficit and the level at which the debt-to-GDP ratio would stabilize. In 2014–2019, the global economy still had an average "safety margin" of 1.2% of GDP. Now, this buffer has almost disappeared: the projected gap for 2024–2029 has fallen to 0.1%.

The debt dynamics are currently strongly influenced by a snowball effect. Traditionally, debt has not been seen as a major problem if its interest rate (r) is lower than the nominal growth rate of the economy (g). Although inflation helped states in 2025 by eroding the real value of debt, this relief is now somewhat receding. This has been replaced by an increase in interest expenditure, which has raised the burden on public finances from 2% to almost 3% of global GDP in just four years.

The deficit is driven particularly by three structural factors:

1. Persistent spending pressures: Population aging and the tightened security situation in Europe have increased social and defense spending in a way that is difficult to reverse.
2. Weakened tax revenue: Growing protectionism and slowing economic growth are eroding the tax base.
3. Explosion in interest expenses: Old, cheap debt is now being refinanced at market rates with high interest. Risks are further increased by the shortened maturity of government debt; the United States, in particular, relies increasingly on short-term Treasury bonds, which makes public finances highly sensitive to interest rate changes.

In addition, investors' attitudes have become less forgiving: instead of institutions, private investors are now active in the market. Central banks have begun to shrink their balance sheets and withdraw from the bond market, and government bonds are now being bought by private investors and hedge funds. This increases volatility, as the response to changes in economic policy has also accelerated.

The IMF report is a reminder that the global economy has exhausted the buffers that helped it overcome previous crises. Much of the global economy's debt sustainability rests in the hands of two major players: the United States and China.

For countries like the United States, the math is inevitable: stabilizing the debt trajectory requires action on both the revenue and expenditure sides. In China, on the other hand, the focus must shift to sustainably supporting consumption. Leena Mörttinen, Under-Secretary of State at the Ministry of Finance, aptly summarized the major problems in the recent Finanssiflikat podcast: Europe should now invest, the United States save, and China consume. This balance is still a long way off for now.