Global public debt has surged to record levels, and the outlook for the next decade is increasingly grim. According to the International Monetary Fund (IMF), global debt is projected to exceed 100% of global GDP by 2030. It will surpass even the pandemic-era highs. Rising debt servicing costs, shrinking fiscal space and elevated interest rates are forcing governments — especially in emerging markets and developing economies (EMDEs). This is not just a fiscal problem; it is a global risk that threatens stability, development and equity.

What makes the current crisis especially dangerous is not only the scale of the debt, but the growing fog surrounding how it is incurred and managed. As governments increasingly rely on complex, often off-balance-sheet borrowing instruments, fiscal risk becomes harder to track, manage and contain. We need transparency, underpinned by sound legal and institutional frameworks, more urgently than ever.

A dangerous shift in debt dynamics

According to the IMF’s 2025 Fiscal Monitor, global public debt surged by $7.5 trillion in just the first quarter of the year, driven by both advanced and emerging economies. In EMDEs, the rise reflects increased dollar borrowing, defense outlays, industrial subsidies and social transfers. Meanwhile, advanced economies like the United States, France and the United Kingdom continue expanding fiscally despite already-high debt levels. The US federal debt is projected to hit 117% of the GDP by 2034.

Public debt doesn’t operate like household debt — governments can often borrow more freely. But that flexibility has limits. The UK, for instance, is facing what billionaire investor Ray Dalio calls a looming “debt death spiral,” driven by rising interest costs and sluggish tax revenue. As rates climb and deficits persist, even wealthy nations may find their fiscal space tightening.

Much of this borrowing is no longer captured in traditional debt statistics. Governments are increasingly turning to several instruments for their financial needs, such as contingent liabilities, liabilities that can occur based on the outcome of an unpredictable future event; public–private partnerships, contractual arrangements between public agencies and private entities that enable more private participation in project delivery; state-owned enterprises (SOEs), legal entities owned and operated by governments for commercial use; and government guarantees, agreements between financial institutions and governments in which the latter takes on the risk of the former’s debt. These instruments often obscure the true fiscal picture, with liabilities surfacing only in times of stress — during banking crises, commodity shocks or disaster responses.

The costs of this opacity are steep. It distorts investment decisions, weakens market discipline and raises borrowing costs. Worse still, it undermines democratic accountability. Citizens cannot scrutinize what they cannot see. The May 2021 Peterson Institute for International Economics report emphasized that, as the saying goes, you can’t manage what you can’t measure.

The transparency deficit

Despite repeated crises, progress on debt transparency remains uneven. Many EMDEs still lack full disclosure of debt-related risks. The February 2024 IMF review found that fewer than half of 85 surveyed countries had legal requirements mandating comprehensive debt reporting. Even where laws exist, they often exclude quasi-fiscal operations and contingent liabilities.

Opaque lending practices, particularly from bilateral and commercial lenders, continue to cloud the picture. Zambia’s recent experience offers a cautionary example. More than 1,300 days after it first defaulted in 2020, Zambia finally concluded a $13.4 billion restructuring in 2024 — the first full case completed under the G20-led Common Framework. The process was plagued by delays, complicated creditor coordination and limited transparency over collateralized and resource-backed loans.

As financing grows more fragmented and complex, institutional capacity is increasingly strained. Without full debt transparency, governments and international institutions alike are left with blind spots that threaten sound macroeconomic management and timely crisis response.

Law and institutions: the bare essentials

While legal reform alone will not resolve the crisis, a basic legal foundation is essential for fiscal accountability. At a minimum, national legislation should clearly define what constitutes public debt, designate which bodies have borrowing authority and establish mandatory disclosure and audit requirements.

Too often these elements are missing or ambiguous. Debt accumulated by SOEs, subnational governments and pension systems is frequently excluded from official statistics, despite representing substantial fiscal exposure. Legal reform should bring such liabilities into the perimeter of public debt for the purposes of reporting, parliamentary oversight and citizen scrutiny.

Critically, governments must empower independent institutions, such as supreme audit institutions and fiscal councils, to evaluate debt operations and flag risks. Their findings must be made public. Without such mechanisms, fiscal mismanagement can flourish under a veil of technical complexity.

However, reforms must be realistic. In fragile or capacity-constrained environments, the focus should be on minimum legal and institutional safeguards, supported by international partners. The goal is not to create perfect transparency overnight. Rather, it is to build a baseline from which trust and resilience can grow.

The case for urgency

Economists Carmen Reinhart and Kenneth Rogoff’s work provides essential context for understanding today’s risks. Their landmark studies show that when public debt surpasses 90% of GDP, growth slows, borrowing costs rise and crisis risk increases. Importantly, they highlight the phenomenon of “debt denial,” where governments underestimate liabilities or postpone adjustments until markets force their hand.

They also warn of a return to financial repression — artificially low interest rates, capital controls and regulatory pressures on banks to hold public debt. These policies may provide short-term fiscal relief but undermine long-term efficiency and trust. They are a symptom of deteriorating fiscal fundamentals, not a cure.

Reinhart and Rogoff’s research underscores that high debt levels rarely unwind through growth alone. Historically, resolution has come through some mix of inflation, default or restructuring and financial repression. The lesson is clear: Delay only raises the cost of adjustment.

Policy trade-offs ahead

Fiscal policy in 2025 and beyond faces an acute trilemma: Governments must rebuild fiscal buffers, respond to social and geopolitical pressures and maintain debt sustainability. This will require painful trade-offs.

Targeted and temporary spending measures should replace broad, untargeted subsidies. Sunset clauses and fiscal triggers can improve discipline. Medium-term fiscal frameworks anchored by credible debt targets must become the rule, not the exception. On the revenue side, EMDEs must mobilize domestic resources. Reforms to broaden tax bases, improve compliance and curb illicit financial flows are overdue. Expenditure-side reforms, particularly to pensions, healthcare and energy subsidies, are also essential to achieving durable fiscal consolidation.

For countries in distress, debt restructuring must be timely and comprehensive. Half-measures only prolong economic stagnation and weaken recovery. The Common Framework for Debt Treatments, launched by the G20, remains underutilized and too slow. A more predictable, rule-based restructuring process is urgently needed.

Move from denial to design

Ultimately, transparency and legal clarity are not merely technical concerns — they are foundational to fiscal resilience and public trust. In an age marked by economic populism, geopolitical rivalry and environmental shocks, public finances must become a source of confidence, not uncertainty.

As IMF Deputy Chief Gita Gopinath warned at Davos 2025, “It is worse than you think.” But it need not remain that way. Governments, international institutions and civil society must move from denial to design. A future of sustainable debt is still within reach — but only if we confront the fog now.

[Lee Thompson-Kolar edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.