Economic Growth

Soaring public debt is worrying experts at Davos 2025. Here's why most of us didn’t see it coming

Public debt levels have increased to unnerving levels, and there could be consequences.

Public debt levels have increased to unnerving levels, and there could be consequences. Image: World Economic Forum

John Letzing
Digital Editor, Economics, World Economic Forum
This article is part of: World Economic Forum Annual Meeting
  • Global debt levels are rapidly increasing.
  • At Davos 2025, participants explored the pressing issue and examined the impact of elevated interest rates.
  • "It is worse than you think," the IMF’s Gita Gopinath said, adding that an "optimism bias" has contributed to projections for debt-level increases falling short.

Not so long ago, the US hit a remarkable milestone.

The country has long spent for more money than any other on its military. But last year, it started spending an even bigger amount on something else: paying the interest on its debt.

For many Americans, that’s probably both surprising and alarming.

Public debt, or the amount a country owes its creditors, doesn’t work quite the same way as a household budget. So a country can generally spend beyond its means in ways the average wage-earner cannot.

Generally, but not always. The UK, for example, was recently said to have a “debt death spiral in the making,” thanks to rising interest rates and inadequate tax revenue.

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“We need an absolute pivot, because this is not business as usual,” said IMF Deputy Chief Gita Gopinath, during a panel discussion at the World Economic Forum's Annual Meeting in Davos. “It is worse than you think.”

It’s not just that the world has now collectively accumulated about $100 trillion in public debt, she said – it’s that higher interest rates make paying it off far more expensive.

Gopinath offered up one reason for why things got so surprisingly bad for so many countries.

“There has tended to be an optimism bias,” she said. The institutions tasked with forecasting have largely failed to account for traumatic events, like financial crises or pandemics. So a handful of years from now, Gopinath said, the actual level of debt could be ten percentage points higher than what’s being projected.

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Whatever the reasons for its jarring trajectory, public debt is top of mind for people paying close attention to the global economy. Countries may be able to raise taxes to manage their debt, or they may not. It’s an abstraction of wealth that can get out of hand quickly, with serious consequences.

Why does it matter if public debt spikes?

“We’ve even got a tax now on fast food,” Zimbabwe’s minister of finance said during a Davos panel. “If you're buying tacos or pizza or something, you pay an extra fee.” Sometimes countries dig deep to buy themselves some fiscal breathing room.

The minister, Mthuli Ncube, noted that his country is now in the midst of a complicated debt restructuring.

“You have to spend time doing financial diplomacy,” he said, somehow getting all of your overseas creditors on the same page about how the restructuring will work. “We’re making progress,” he added.

Heavy debt loads mean governments may have less money available for all of the positive, forward-looking things they want to do – like investing in public services, or boosting their ability to compete globally through innovation and entrepreneurship.

As interest rates rise, there’s even less handy to invest. This is a particularly crushing load to bear for less-wealthy nations.

Zimbabwe's Minister of Finance Mthuli Ncube
Zimbabwe's Minister of Finance Mthuli Ncube Image: World Economic Forum

“3.3 billion people in the world live in countries that are spending more on servicing the debt than on education or health,” UN Trade and Development Secretary-General Rebecca Grynspan said during a Davos panel. “So growth and development cannot happen.”

That also means whatever growth is mustered would be less likely to be sustainable, Grynspan said.

But what about wealthier economies? Japan’s debt-to-GDP ratio has topped 200%, so why are more people not alarmed about that? The US, UCLA School of Law Professor Kimberly Clausing said during a Davos panel, is headed for an unnerving ratio of 120%.

“In the United States it’s very much worse than you think,” she said, echoing Gopinath.

UCLA School of Law Professor Kimberly Clausing.
UCLA School of Law Professor Kimberly Clausing. Image: World Economic Forum

That means there’s less of a buffer to protect the country from “negative shocks” like a security issue or a recession, Clausing said. Unnecessary trade friction, particularly with traditionally close trade partners, could also complicate matters; “There also can be self-injury.”

London Stock Exchange Group CEO David Schwimmer cited a failure of political leaders to face up to the worsening public debt situation.

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  • Economic growth and finance at Davos 2025

“There was an enormous missed opportunity after the pandemic,” he said during a Davos panel. Governments could’ve seized the chance to explain the downsides of their heavy spending, which was meant to maintain stability during a health crisis.

One possible way to ease the public-debt burden: boost productivity.

Schwimmer said he sees real potential for artificial intelligence to help. That draws the planet’s need to fundamentally benefit from a technology widely championed, but mostly experienced to date as a way to avoid writing something for work, into much sharper relief.

“There is substance beneath that hype,” Schwimmer said

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