IMF GFSR: Global Public Debt-at-Risk
A New Framework for Assessing Fiscal Vulnerability
How does the IMF's "Debt-at-Risk" framework quantify the future of global public debt?
The IMF Global Financial Stability Report (GFSR) has introduced the "Debt-at-Risk" (DaR) framework to measure extreme fiscal vulnerabilities. As of late 2024, global public debt is projected to exceed $100 trillion (93% of global GDP). However, the DaR "adverse scenario" (the 95th percentile) warns that debt could surge to 115% of GDP by 2026 if financial conditions tighten or growth slows. Unlike traditional static indicators, the DaR model provides a forward-looking, probabilistic view across 75 economies, identifying "upside risks" to debt levels that are often underestimated by baseline projections.
Overview of the Global Public Debt Indicator
While the IMF's Fiscal Monitor tracks the raw numbers, the Global Financial Stability Report (GFSR) focuses on how debt impacts financial stability. The "Debt-at-Risk" indicator is the centerpiece of this analysis, acting as a "canary in the coal mine" for sovereign credit stress.
Key Features of the Indicator:
Quantile Regression Analysis: Instead of just looking at the most likely outcome, the indicator maps the entire range of possibilities, focusing on "tail risks" (worst-case scenarios).
3-Year Horizon: It projects potential debt levels three years into the future, providing a medium-term warning system for policymakers.
Macro-Financial Linkages: The tool integrates variables such as interest rate spreads, GDP growth volatility, and global risk appetite to see how they "shift" the debt distribution.
Country-Specific Scaling: It differentiates between Advanced Economies (where debt is high but stable) and Emerging Markets (where debt-at-risk is rising due to sensitivity to global shocks).
Current Global Trends (2024–2026)
| Metric | Baseline Projection (2024) | Debt-at-Risk Scenario (2026) |
| Global Debt-to-GDP | 93% | 115% |
| Total Value | ~$100 Trillion | ~$120+ Trillion |
| Primary Driver | Fiscal Deficits | "Unidentified Debt" & Market Shocks |
Why This Matters for Investors and Policy
The GFSR warns of a "widening disconnect" between low market volatility and high economic uncertainty. If this gap closes suddenly—due to geopolitical shocks or disappointing inflation data—the "Debt-at-Risk" scenario becomes the reality.
"There is a dangerous gap between the calm in financial markets and the rising mountain of public debt." — IMF GFSR Commentary
The IMF recommends that countries where debt is not projected to stabilize—including the US, China, Brazil, and France—implement "growth-friendly" fiscal consolidation now, rather than waiting for a market-forced correction.
IMF GFSR Scorecard: High-Risk Nations & Fiscal Vulnerabilities
Assessing the Leaders in Global Public Debt Risk
Which leading economies are most vulnerable according to the IMF’s Debt-at-Risk scorecard?
The IMF 2024–2025 Scorecard identifies a specific group of systemically important economies where public debt is not projected to stabilize under current policies. While global debt is expected to top $100 trillion, the risk is concentrated in a few "heavyweight" nations. Specifically, the United States and China are the primary drivers of this upward trajectory, with Brazil, France, Italy, South Africa, and the United Kingdom also flagged for significant "upside risks." In these nations, the "adverse scenario" debt level is estimated to be nearly 20 percentage points higher than baseline projections over the next three years.
The 2025 Global Public Debt Scorecard
The following table summarizes the status of leading economies and regions based on the latest Global Financial Stability Report and Fiscal Monitor data.
| Country / Region | Flag | Debt Status | Risk Level | Primary Risk Driver |
| United States | 🇺🇸 | Rising sharply | Critical | High primary deficits & interest costs |
| China | 🇨🇳 | Persistent rise | Critical | Property sector stress & LGFV debt |
| France | 🇫🇷 | Not stabilizing | High | Structural deficits & political uncertainty |
| Italy | 🇮🇹 | High/Stagnant | High | Low growth vs. high interest rates |
| United Kingdom | 🇬🇧 | Moderate rise | Medium-High | Fiscal "slippages" & inflation volatility |
| Brazil | 🇧🇷 | Rising | High | High real interest rates |
| South Africa | 🇿🇦 | Rising | High | Structural growth bottlenecks |
Leading Indicators of Distress
The IMF uses several "flags" to determine a country's position on the scorecard. If a country checks more than two of these boxes, it is considered at high risk for a market-forced correction.
🚩 The "r-g" Gap: When the real interest rate ($r$) exceeds the real growth rate ($g$). This makes debt grow automatically even with a balanced budget.
🚩 Unidentified Debt: Hidden liabilities (averaging 1.0–1.5% of GDP annually) that typically "materialize" during financial stress.
🚩 Disconnect Flag: When a country has high economic uncertainty but very low market volatility (a sign of investor complacency).
🚩 Policy Slippage: The tendency for governments to increase spending during election cycles (2024 was a record year for global elections).
Emerging Markets vs. Advanced Economies
The scorecard reveals a stark divergence in how these "leading" countries handle stress:
Advanced Economies (AEs): Debt-at-risk has actually declined slightly from pandemic peaks to 134% of GDP, but the sheer volume in the US and France keeps the global average high.
Emerging Markets (EMs): Debt-at-risk has increased to 88% of GDP. While countries like India have shown resilience through deep local investor bases, others face a "debt begets more debt" cycle.
"Delaying action in countries like the US, Brazil, and France will only make the required adjustment larger and riskier. The time to rebuild fiscal buffers is while inflation is moderating and central banks are easing." — IMF Fiscal Affairs Department
US Public Debt: The "Anchor" of Global Fiscal Risk
A Deep Dive into the United States' $36 Trillion Challenge
How does the United States impact the Global "Debt-at-Risk" projections?
The United States is currently the primary driver of global public debt, with debt held by the public reaching 100% of GDP ($36 trillion) in early 2026. According to the latest assessments, the US is a systemic "risk anchor." While baseline forecasts assume steady growth, the "adverse scenario" (the 95th percentile of risks) suggests that a combination of pro-cyclical spending and rising interest rates could push US debt-to-GDP significantly higher by 2028. The US is currently operating with a primary deficit of roughly 6%, a level rarely seen during periods of high employment outside of major crises.
The US Fiscal Scorecard: 2026 Snapshot
Leading indicators suggest the US has triggered several "Critical" flags due to its current fiscal trajectory.
| Metric | 2026 Status | Risk Flag | Impact on Stability |
| Debt-to-GDP Ratio | ~100% | 🚩 | Reaching historic peaks; reduces "fiscal space" for future crises. |
| Primary Deficit | ~6% of GDP | 🚩 | Spending significantly outpaces revenue even in a strong economy. |
| Interest Costs | ~$1.1 Trillion | 🚩 | Net interest outlays are now eclipsing major categories like Defense. |
| Real Growth ($g$) | ~2.0% | 🟢 | Moderate growth helps, but is currently neutralized by high rates ($r$). |
Key Vulnerabilities Flagged
The current analysis identifies three specific "pressure points" that make the US debt trajectory particularly volatile:
1. The "Interest-Growth" Differential ($r - g$)
For decades, the US benefited from a "favorable" gap where economic growth ($g$) was higher than the interest rate paid on debt ($r$). In 2026, this has flipped. With real interest rates staying elevated to combat sticky inflation, the debt now compounds automatically. This "debt snowball" requires the government to run a budget surplus just to keep the debt ratio flat—something the US has not done in over two decades.
2. "Unidentified Debt" & Contingent Liabilities
History shows that during financial stress, "hidden" liabilities often emerge. In the US, these typically take the form of:
Banking Sector Backstops: Implicit guarantees for the financial system.
State/Local Shortfalls: Federal interventions required when lower-level governments face liquidity crises.
Off-Balance-Sheet Risks: Unfunded mandates in social insurance programs that face accelerating depletion dates.
3. The Complacency Disconnect
There is a widening gap between market volatility (which remains low) and fiscal uncertainty (which is at a record high). Investors currently treat US Treasuries as the ultimate "safe haven," but a sudden shift in "term premium"—the extra yield investors demand for holding long-term debt—could lead to a violent repricing of global assets.
Strategic Recommendations
To move the US off the "Critical Risk" list, the following measures are recommended:
Growth-Friendly Consolidation: Reducing the primary deficit by approximately 1% of GDP per year to stabilize debt by the end of the decade.
Entitlement Reform: Addressing the structural math of Social Security and Medicare before trust fund exhaustion triggers automatic cuts.
Revenue Mobilization: Broadening the tax base to ensure that revenue keeps pace with the rising costs of an aging population and the green energy transition.
"The United States has the luxury of the world's reserve currency, but it does not have the luxury of infinite fiscal expansion. Rebuilding buffers now is the only way to ensure the 'Debt-at-Risk' adverse scenario remains a theory rather than a reality."
China’s Public Debt: The LGFV Shadow and Structural Risk
Analyzing Hidden Vulnerabilities in the World’s Second-Largest Economy
How does China’s unique debt structure contribute to the global "Debt-at-Risk" indicator?
As of early 2026, China stands alongside the United States as a primary driver of global public debt growth. While official figures place China's government debt at approximately 102% of GDP, the IMF’s "Debt-at-Risk" framework identifies a much larger "augmented" debt profile. The critical vulnerability in China’s system is not the central government, but the Local Government Financing Vehicles (LGFVs)—off-balance-sheet entities used to fund infrastructure. Estimates suggest these "hidden" liabilities exceed 60 trillion RMB (~$8.4 trillion). If financial conditions tighten or the property market downturn persists, this hidden debt could trigger a systemic "tail risk," pushing China’s total public obligations toward 135% of GDP by the end of 2026.
China's Fiscal Scorecard: 2026 Snapshot
The intersection of a sluggish property sector and local government insolvency has triggered several "Critical" flags on the 2026 scorecard.
| Metric | 2026 Projection | Risk Flag | Primary Concern |
| Augmented Debt | ~135% of GDP | 🚩 | Includes central, local, and LGFV liabilities. |
| LGFV "Hidden" Debt | ~48% of GDP | 🚩 | High interest costs on non-productive assets. |
| Real GDP Growth | ~4.4% | 🟡 | Decelerating from historic highs; limits debt service capacity. |
| Property Revenue | -15% (est.) | 🚩 | Collapse in land sales erodes local government income. |
Key Vulnerabilities: The Three Pillars of Risk
The latest financial stability assessments identify three specific "pressure points" that define China’s fiscal risk profile:
1. The Property-Local Finance Feedback Loop
Local governments in China traditionally rely on land sales for up to 40% of their fiscal revenue. With the property sector in a protracted correction, this revenue stream has vanished. Localities are now trapped in a cycle where they must issue new debt just to pay interest on old LGFV loans, creating a "liquidity trap" at the municipal level.
2. The "Deflation-Debt" Trap
China is currently struggling with low inflationary pressure. When prices are stagnant, the "real" value of debt effectively rises because nominal incomes don't grow fast enough to make repayments easier. This makes the massive corporate and local debt pile increasingly heavy, even if no new borrowing occurs.
3. The Shift to Central Leveraging
To prevent a regional collapse, Beijing has initiated massive debt-swap programs (roughly 10 trillion RMB through 2028). The central government is effectively taking high-interest "hidden" local debt and converting it into lower-interest, formal provincial bonds. While this reduces immediate default risk, it permanently shifts the burden to the sovereign balance sheet, reducing the central government's "fiscal space" for future stimulus.
Strategic Recommendations for 2026
To avoid a systemic "Debt-at-Risk" scenario, analysts suggest a pivot in the Chinese economic model:
Consumption-Led Support: Shifting fiscal stimulus away from "bricks and mortar" infrastructure and toward direct household support to reflate the economy.
LGFV Cleanup: Using formal insolvency frameworks to wind down the most "zombie-like" local vehicles rather than providing endless bailouts.
Fiscal Transparency: Fully integrating off-budget liabilities into the national budget to give global markets a clear, honest view of China’s total public obligations.
"China's challenge is not a lack of resources, but the misallocation of them. The transition from investment-led growth to a stable, consumption-based economy is the only path to defusing the local government debt bomb."
France’s Public Debt: Structural Deficits and Political Deadlock
Navigating the Challenges of Europe’s Second-Largest Economy
How does France’s fiscal trajectory impact the Eurozone’s financial stability?
As of early 2026, France has emerged as a focal point of fiscal concern within the Eurozone.
France’s Fiscal Scorecard: 2026 Snapshot
France is currently under the EU's "Excessive Deficit Procedure," a formal warning to correct its fiscal course.
| Metric | 2026 Projection | Risk Flag | Primary Concern |
| Debt-to-GDP Ratio | ~112% | 🚩 | One of the highest in the Eurozone; limited buffers. |
| Annual Budget Deficit | ~5.5% | 🚩 | Far above the 3% Stability and Growth Pact limit. |
| Public Spending | ~57% of GDP | 🚩 | The highest among OECD nations; hard to reduce. |
| Real GDP Growth | ~0.8% - 1.2% | 🟡 | Sluggish growth makes debt reduction difficult. |
Key Vulnerabilities: The Three Pillars of Risk
Financial analysts and international monitors identify three specific "pressure points" unique to the French economy:
1. The "Structural Rigidity" Trap
France has the highest level of public spending in the developed world. A vast majority of this spending is "structural"—meaning it is locked into pensions, healthcare, and social protections that are politically explosive to reform. While the 2023 pension reforms provided some long-term relief, the immediate fiscal impact has been neutralized by rising demand for social services and energy subsidies.
2. Political Fragmentation
Unlike previous decades, France currently faces a highly fragmented parliament.
3. Rising Borrowing Costs
For years, France benefited from the "OAT-Bund spread" (the difference between French and German borrowing costs) being very narrow. In 2025 and 2026, this spread has widened. As older, low-interest debt matures and is replaced by new debt at higher market rates, France's interest bill is projected to reach €70 billion annually, consuming funds that could otherwise be used for green transition or digital innovation.
Strategic Recommendations for 2026
To avoid a market-forced correction, the following steps are prioritized:
Multi-Year Consolidation: A credible plan to reduce the deficit by at least 0.5% of GDP annually to restore market confidence.
Spending Efficiency: Moving from "broad" subsidies to targeted support to reduce the overall spending-to-GDP ratio without harming the most vulnerable.
Pro-Growth Reforms: Simplifying the labor market and reducing the administrative burden on businesses to boost the denominator (GDP).
"France is at a crossroads where its social model meets its fiscal limits. The challenge is to preserve the 'French Exception' while acknowledging that debt levels are no longer on a sustainable path."
Italy’s Public Debt: The Growth-Debt Dilemma
Managing Europe’s Largest Debt Pile in a High-Interest Era
How does Italy’s debt burden influence the Eurozone’s financial stability?
As of 2026, Italy remains a critical focal point for global financial stability due to its massive sovereign debt, which stands at approximately 138% of GDP. While Italy has a long history of running "primary surpluses" (collecting more in taxes than it spends, excluding interest), it is currently struggling with a low potential growth rate and a high interest-rate environment. Under the "Debt-at-Risk" framework, Italy is flagged for its high sensitivity to market sentiment. A sudden rise in the "spread"—the difference between Italian and German bond yields—can quickly escalate debt-servicing costs, making the country’s fiscal path precarious.
Italy’s Fiscal Scorecard: 2026 Snapshot
Italy’s fiscal health is defined by the tension between high legacy debt and the need for modernizing investments funded by the EU.
| Metric | 2026 Status | Risk Flag | Primary Concern |
| Debt-to-GDP Ratio | ~138% | 🚩 | Second highest in the Eurozone; extremely sensitive to rate hikes. |
| Interest-to-GDP | ~4.5% | 🚩 | High interest payments "crowd out" public investment. |
| Real GDP Growth | ~0.7% | 🚩 | Persistent stagnation makes it hard to "grow out" of debt. |
| Primary Balance | Near Zero | 🟡 | Improving, but needs a larger surplus to stabilize debt. |
Key Vulnerabilities: The Three Pillars of Risk
The following "pressure points" make the Italian debt trajectory particularly complex in 2026:
1. The "r - g" Trap (Interest vs. Growth)
Italy is the primary example of the "interest-growth" trap. Because Italy’s economic growth ($g$) is chronically lower than the interest rate it pays on its debt ($r$), the debt ratio naturally tends to rise. To prevent this "snowball effect," Italy must maintain a significantly higher primary surplus than its neighbors, which limits the government's ability to lower taxes or increase social spending.
2. Dependency on the "NRRP" (Recovery Fund)
Italy’s hopes for debt stabilization rely heavily on the National Recovery and Resilience Plan (NRRP)—a massive injection of EU funds intended to boost productivity. If the implementation of these reforms (such as judicial and administrative changes) stalls, the projected growth boost will vanish, leaving Italy with its high debt but without the improved economic engine needed to sustain it.
3. The "BTP-Bund" Spread
The "spread" is Italy’s most watched financial barometer. It measures the risk premium investors demand to hold Italian bonds (BTPs) instead of safe-haven German Bunds. In 2026, the European Central Bank's "Transmission Protection Instrument" (TPI) acts as a backstop, but markets remain sensitive to any sign of political instability or fiscal "slippage" that could cause the spread to widen uncontrollably.
Strategic Outlook: The Path to Stability
To transition Italy toward a more sustainable fiscal future, the following strategies are essential:
Productivity-Led Growth: Fully utilizing EU funds to digitize the economy and reform the labor market to increase the GDP "denominator."
Fiscal Prudence: Gradually returning to a primary surplus of at least 2% of GDP to convince markets that the debt-to-GDP ratio is on a downward path.
Debt Maturity Management: Extending the average maturity of government bonds to lock in rates and protect the budget from sudden market spikes.
"Italy is a 'too big to fail' economy within the Eurozone. Its stability relies on a delicate balance: maintaining the trust of international bond markets while implementing the deep structural reforms required to end decades of economic stagnation."
UK Public Debt: The Struggle for Fiscal Headroom
Managing the Balance Between Record Debt and Economic Growth
How does the United Kingdom's fiscal position affect its financial stability?
As of early 2026, the United Kingdom is navigating a complex fiscal environment where public sector net debt has reached approximately 95.5% of GDP (roughly £2.9 trillion). The UK is flagged as a significant area of concern due to its high sensitivity to interest rate fluctuations and a shrinking amount of "fiscal headroom." While new rules aim to ensure debt is falling by the third year of government forecasts, the cost of servicing this debt has become a major anchor on the economy. The UK currently spends more on interest than it does on many major public services, leaving very little room to absorb new economic shocks.
The UK Fiscal Scorecard: 2026 Snapshot
The UK has shifted its focus to a broader measure of the balance sheet, "Public Sector Net Financial Liabilities" (PSNFL), to better account for government assets like student loans.
| Metric | 2026 Status | Risk Flag | Primary Concern |
| Net Debt-to-GDP | ~95.5% | 🚩 | Near historic highs; highly sensitive to market shifts. |
| Annual Deficit | ~4.5% of GDP | 🚩 | Driven by "sticky" spending in healthcare and social care. |
| Debt Interest Cost | ~£114 Billion | 🚩 | Consumes roughly 8% of total tax revenue. |
| Real GDP Growth | ~1.2% | 🟡 | Sluggish growth makes the debt ratio harder to shrink. |
Key Vulnerabilities: The Three Pillars of Risk
Analysts identify three critical "pressure points" that define the UK's fiscal fragility in 2026:
1. The "Inflation-Interest" Sensitivity
The UK has a uniquely high proportion of index-linked gilts (inflation-linked bonds), accounting for about 25% of its total debt. This means that when inflation rises, the cost to the taxpayer increases almost instantly. With interest rates remaining elevated to manage persistent price pressures, the cost of servicing this debt remains a massive burden, rivaling the entire national education budget.
2. The "Fiscal Headroom" Bind
The government's fiscal rules require debt to be falling as a share of GDP in three years' time. However, the "margin" for meeting this rule—known as fiscal headroom—is extremely thin. Any slight downgrade in growth forecasts or a small increase in global borrowing costs could force the government to choose between further tax hikes or deep spending cuts to avoid breaking its own rules.
3. The Productivity & Investment Gap
A primary driver of the UK's debt risk is the lack of long-term productivity growth. Since the late 2000s, UK productivity has lagged behind many G7 peers. Without a significant boost in economic output, the government must rely on higher taxes to fund public services, as the economy isn't growing fast enough to naturally reduce the debt-to-GDP ratio.
Strategic Outlook: The 2026 Path Forward
To secure a stable fiscal future, the UK has prioritized the following:
Targeted Investment: Focusing on "supply-side" reforms in planning and infrastructure to unlock private sector growth.
Fiscal Transparency: Using wider balance sheet metrics (like PSNFL, currently around 83% of GDP) to show a more complete picture of government strength.
Strict Spending Controls: Moving toward a "day-to-day" budget surplus to ensure that any new borrowing is strictly for long-term capital investment.
"The UK is in a race between its debt costs and its growth rate. Success depends on whether the government can stimulate enough private investment to outrun the rising cost of its past borrowing."
Global Public Debt: Strategic Frameworks and Institutional Best Practices
A Technical Analysis of Sovereign Debt Management in Leading Economies
In the contemporary financial landscape, the management of public debt has evolved from a basic financing function into a sophisticated exercise in risk mitigation and macroeconomic stabilization. For leading economies, "best practice" is defined by the ability to balance cost-minimization with a rigorous risk-management framework, ensuring the sovereign balance sheet remains resilient against global volatility.
The Institutional "Gold Standard": Comparative Frameworks
Leading nations utilize specialized institutional setups to decouple debt management from short-term political cycles. The table below outlines specific strategic implementations across top-tier economies as of 2026.
| Economy | Institutional Mechanism | Strategic Implementation (Best Practice) | Objective |
| United Kingdom | Independent DMO | Operational independence of the UK Debt Management Office from the Treasury and Central Bank. | Eliminates perceived conflicts of interest between monetary policy and debt issuance. |
| Germany | Constitutional "Debt Brake" | Legal restriction limiting structural deficits to 0.35% of GDP (Schuldenbremse). | Provides a legally binding fiscal anchor to ensure long-term sustainability. |
| Sweden | SNDO Strategy | Active "Maturity Smoothing" where the Debt Office ensures an even redemption profile across decades. | Mitigates "Refinancing Risk" by preventing large debt clusters from maturing simultaneously. |
| United States | Auction Predictability | Adherence to a "Regular and Predictable" issuance schedule regardless of prevailing market rates. | Minimizes the "Uncertainty Premium" and maintains deep liquidity in global markets. |
| Italy | Retail Diversification | Strategic targeting of the domestic retail base (BTP Valore) to reduce reliance on foreign institutional capital. | Enhances "Investor Base Stability" and reduces susceptibility to sudden capital flight. |
| New Zealand | Transparency Mandate | Monthly publication of central government financial statements and detailed debt portfolios. | Reduces "Information Asymmetry" between the sovereign and international creditors. |
Core Pillars of Modern Sovereign Debt Management
A professionalized debt management framework rests on four technical pillars that move beyond simple accounting to strategic risk management.
1. The r - g Differential Management
In the current high-interest environment, the relationship between the real interest rate (r) and the real growth rate (g) is the primary driver of sustainability.
The "Snowball" Trigger: When r > g, the debt-to-GDP ratio increases automatically.
Best Practice: Governments must generate a Primary Surplus (revenue minus spending, excluding interest) sufficient to offset this differential. Countries like Germany utilize automatic "correction mechanisms" to trigger fiscal adjustments when these thresholds are breached.
2. Portfolio Risk Analysis
Leading Debt Management Offices (DMOs) use stochastic simulation models to evaluate the impact of interest-rate and exchange-rate shocks.
Maturity Extension: Aiming for a high Average Time to Maturity (ATM) to "lock in" rates and protect the budget from sudden market spikes.
Currency Choice: Prioritizing domestic currency debt to avoid the "Original Sin" of debt ballooning during local currency devaluations.
3. Radical Transparency
In 2026, transparency is treated as a core financial asset. A robust program includes:
Predictable Calendars: Publishing auction dates and volume estimates months in advance.
Consolidated Reporting: Including "contingent liabilities" (state-owned enterprise debt and government guarantees) in official counts to prevent "off-balance-sheet" surprises.
Strategic Conclusion: The 2026 Outlook
The challenge for the next five years is the transition from crisis-mode borrowing to a sustainable Medium-Term Debt Management Strategy (MTDS). Success will be determined by how effectively nations treat debt management as a professionalized discipline centered on independence and the relentless monitoring of the interest-growth gap.
"The credibility of a sovereign is no longer measured by its total debt alone, but by the transparency of its institutions and the predictability of its management framework."