The Debt Reckoning: Rodrigo Valdés and Era Dabla-Norris

The IMF Fiscal Affairs heads warn that global debt, already at 93% of GDP, is on track to reach 100% by the early 2030s – a level last seen only during wartime. The surge was driven by pandemic‑related stimulus and a decade of ultra‑low interest rates that made borrowing appear cheap. Today, higher rates raise debt‑service costs, threatening fiscal space and amplifying the risk of fiscal dominance, especially in low‑income economies where interest payments consume over 20% of revenue.

Political dynamics compound the problem. Across the ideological spectrum, parties have converged on expansionary platforms, cutting taxes while increasing spending, creating a structural bias toward higher debt. Surveys reveal that only 40% of citizens link higher spending to larger deficits, and trust in government fiscal competence is at historic lows. This knowledge gap fuels resistance to consolidation measures, making transparency, clear communication, and institutional tools like fiscal councils essential for rebuilding confidence.

To reverse the trajectory, policymakers must craft transparent, fair reform packages that balance spending cuts with targeted tax adjustments, while explicitly showing intergenerational benefits. Successful cases—from pension reforms in Spain and Uruguay to energy‑subsidy adjustments in Morocco—demonstrate that broad political coalitions and sequenced, compensatory policies can secure public buy‑in. Emphasizing equity, explaining trade‑offs, and highlighting the long‑term cost of inaction are critical steps toward sustainable debt reduction and restored fiscal trust.