Global public debt is rising again after a brief decline from historic pandemic-era highs, while governments face increasing demands on public spending, according to the International Monetary Fund (IMF) Annual Report 2026.
The IMF warns that debt was already on track to reach levels comparable to those seen around the end of the Second World War by 2028, even before the latest conflict in the Middle East added further pressure through higher energy prices, tighter financial conditions and weaker economic growth.
Long-term sovereign bond yields have risen and become more volatile. At the global level, interest payments have increased by almost half over the past three years, from around 2% to nearly 3% of GDP, reducing the funds available for priorities such as education, infrastructure and other public investment.
The higher cost of borrowing is compounded by increased defence spending needs, as trade and geopolitical uncertainty add to governments' financial pressures. The IMF also highlights risks to financial stability, including greater exposure to changes in short-term funding conditions and potential disruptions in foreign exchange and other financial markets.
The fiscal challenges affect countries across all income groups. Energy-importing and low-income countries face particularly strong pressures, while increased borrowing by advanced economies can also reduce the funds available to other sovereign borrowers.
The IMF stresses the need for rigorous fiscal prioritisation as demands on public finances continue to grow. Where energy subsidies are necessary and fiscal space exists, the Fund recommends that they should be temporary and targeted.
According to the IMF, governments can also create fiscal space by mobilising additional revenue and implementing structural reforms, while protecting investment in areas such as digital infrastructure, education and social safety nets. Such measures can help economies strengthen resilience to trade, energy and climate-related disruptions while supporting long-term growth.
The IMF says it will continue to support its member countries through policy advice, financing and technical expertise, including assistance with revenue mobilisation, investment assessment and multi-year budgeting.
The report highlights the growing importance of sound public finances, efficient investment and fiscal resilience in an increasingly uncertain global economic environment.
