The World’s $100 Trillion Fiscal Timebomb Keeps Ticking

(Bloomberg) -- Even before global finance chiefs fly into Washington over the next few days, they’ve been urged in advance by the International Monetary Fund to tighten their belts.

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Two weeks ahead of a potentially era-defining US election, and with the world’s recent inflation crisis barely behind it, ministers and central bankers gathering in the nation’s capital face intensifying calls to get their fiscal houses in order while they still can.

The fund, whose annual meetings begin there on Monday, has already pointed to some of the themes it hopes to press home with a barrage of projections and studies on the global economy in coming days.

The IMF’s Fiscal Monitor on Wednesday will feature a warning that public debt levels are set to reach $100 trillion this year, driven by China and the US. Managing Director Kristalina Georgieva, in a speech on Thursday, stressed how that mountain of borrowing is weighing on the world.

“Our forecasts point to an unforgiving combination of low growth and high debt — a difficult future,” she said. “Governments must work to reduce debt and rebuild buffers for the next shock — which will surely come, and maybe sooner than we expect.”

Some finance ministers may get further reminders even before the week is over.

UK Chancellor of the Exchequer Rachel Reeves has already faced an IMF warning of the risk of a market backlash if debt doesn’t stabilize. Tuesday marks the last release of public finance data before her Oct. 30 budget.

The UK tax office is taking a tougher approach to clawing back debts, insolvency specialists say, a bid to squeeze £5 billion ($6.5 billion) in extra revenue.

What Bloomberg Economics Says:

“For all the talk of black holes, the overall effect of Reeves budget will be a policy that’s looser, not tighter, relative to the previous government’s plans.”

—Ana Andrade and Dan Hanson, economists. For full analysis, click here

Meanwhile, Moody’s Ratings has slated Friday for a possible report on France, which faces intense investor scrutiny at present. With its assessment one step higher than major competitors, markets will watch for any cut in the outlook.

As for the biggest borrowers of all, the glimpse of the IMF’s report already published contains a grim admonishment: your public finances are everyone’s problem.