The International Monetary Fund (IMF) has warned that if fiscal revenues and economic output decline more significantly than current forecasts due to rising tariffs and weakened growth prospects, debt levels may exceed existing “debt-at-risk” estimates.

“The series of recent tariff announcements by the United States, and countermeasures by other countries have increased financial market volatility, weakened growth prospects, and increased risks,” IMF officials wrote in a blog post.

The post was published alongside the release of the organisation’s latest Fiscal Monitor, stressing that current major policy shifts are exacerbating global uncertainty.

“They come in the context of rising debt levels in many countries and already strained public finances, which in many cases will also need to accommodate new and permanent increases in spending, such as defence,” they said.

“Rising yields in major economies and widening spreads in emerging markets further complicate the fiscal landscape,” they added.

The IMF projects global public debt to increase by 2.8 percentage points this year, pushing debt levels above 95 percent of gross domestic product (GDP).

This upward trend is likely to continue, with public debt nearing 100 percent of GDP by the end of the decade, surpassing pandemic levels. “Amid substantial policy uncertainty and a shifting economic landscape, debt levels could rise even further,” IMF officials noted.

According to the Fiscal Monitor’s debt-at-risk, in a “severely adverse scenario,” global public debt could reach 117 percent of GDP by 2027. This would represent the highest level since World War II, exceeding reference projections by almost 20 percentage points.

“Risks to the fiscal outlook have further intensified. Debt levels may rise even further than the debt-at-risk estimates if revenues and economic output decline more significantly than current forecasts due to increased tariffs and weakened growth prospects,” according to the blog. “Additionally, escalating geo-economic uncertainties could heighten debt risks, driving up public debt through increased expenditures, particularly in defence,” it noted, adding that demands for fiscal support could also rise for those vulnerable to severe disruptions from trade shocks, pushing up spending.

The Fiscal Monitor estimates that a significant rise in geo-economic uncertainty could lead to a public debt increase of approximately 4.5 per cent of GDP in the medium term.

The report also pointed out that tighter and more volatile financial conditions in the United States may have “ripple effects” on emerging markets and developing economies, leading to higher financing costs. “This significantly impacts commodity prices, resulting in lower prices and heightened price volatility,” IMF officials said.

“Limited fiscal improvements may further heighten risks from rising interest rates, especially as many countries have substantial financing needs.