Rising public debt and what it could mean for investors

PUBLIC or sovereign debt, is an important way for governments to finance investments in growth and development. However, it is also critical that governments are able to continue servicing their debt and that their debt burden remains sustainable.

The International Monetary Fund (IMF) estimates the Group of 7’s (G7) gross government debt to reach around 126 per cent of gross domestic product this year, up from 85 per cent two decades ago.

The key factor driving the surge in public debt is the persistently high global fiscal deficit, which stands at approximately 5 per cent of GDP. This surge largely reflects extraordinary shocks, including the 2008 financial crisis and Covid-19 pandemic, such as subsidies and social spending, combined with rising net interest costs.