Rising Debt, Oil Shock Could Trigger Global Slowdown, IMF Warns
The International Monetary Fund (IMF) has warned that rising global debt, persistent oil price shocks, and escalating geopolitical tensions in the Middle East could significantly weaken the world economy, with total public debt projected to reach 100 per cent of global GDP by 2029.
The warning was contained in the IMF’s latest Fiscal Monitor report, which highlighted growing fiscal vulnerabilities across both advanced and developing economies as high interest rates, weak revenue growth, and rising borrowing costs continue to strain government budgets worldwide.
The Fund said the combination of energy price volatility, increasing debt servicing costs, and geopolitical instability is placing governments under mounting pressure, especially in emerging and developing economies that rely heavily on imported energy.
The IMF projected that global public debt rose to 93.9 per cent of GDP in 2025, up from 92 per cent in 2024, and is expected to rise further to 100 per cent by 2029, marking the highest level since the aftermath of World War II. It further warned that debt could continue increasing beyond that level, potentially reaching 102.3 per cent of GDP by 2031 if current trends persist.
According to the report, rising debt levels are being driven by structural spending pressures such as ageing populations, climate-related investments, higher defence and security spending, and increasing interest payments. Interest costs alone now account for nearly 3 per cent of global GDP, compared to about 2 per cent four years ago, significantly reducing fiscal flexibility for many governments.
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The IMF also cautioned that prolonged disruptions in global oil supply, driven by escalating Middle East tensions, could push crude oil prices above $100 per barrel through 2027, increasing the risk of a global economic slowdown or recession. Energy market instability, the Fund noted, remains one of the fastest channels through which geopolitical shocks impact inflation, trade, and household living costs.
The report also warned governments against introducing broad-based fuel subsidies in response to rising energy prices. Director of the IMF’s Fiscal Affairs Department, Rodrigo Valdés, said such policies distort market signals and could worsen global energy imbalances.
Instead, he recommended targeted cash transfers to vulnerable households, arguing that energy prices must reflect real supply conditions to allow for proper market adjustment.
Valdés stressed that while governments face political pressure to shield citizens from rising fuel costs, suppressing prices could delay necessary demand adjustments and worsen long-term instability in energy markets.
The IMF further highlighted emerging risks in global debt markets, including the growing influence of non-traditional investors such as hedge funds, which may be less stable during periods of financial stress. It also pointed to declining debt maturities, which increase countries’ vulnerability to short-term interest rate fluctuations and refinancing risks.
Additional fiscal pressures identified in the report include rising security expenditures, climate change adaptation costs, and increased debt servicing obligations, all of which are limiting governments’ ability to build fiscal buffers.
The Fund also warned that global trade fragmentation, political instability, and potential market corrections in fast-growing sectors such as artificial intelligence could further tighten global financial conditions and slow economic growth.
Despite these risks, the IMF stressed that the world is not yet in a full-blown debt crisis. However, it warned that delays in implementing fiscal reforms could lead to more severe economic corrections in the future.
“We’re not at a crisis point, but the more countries delay adjustment measures, the steeper the eventual correction,” Valdés said.
The IMF urged governments to begin implementing credible medium-term fiscal consolidation plans, improve revenue mobilisation, and ensure more efficient public spending once immediate economic pressures ease, stressing that restoring fiscal buffers is essential for long-term stability.
Rising Debt, Oil Shock Could Trigger Global Slowdown, IMF Warns
