IMF projects EU public debt may exceed 130% of GDP by 2040

On Tuesday, IMF Managing Director Kristalina Georgieva warned that the average public debt of European Union countries could more than double to over 130% of GDP by 2040 if current policy trends continue. This projected increase is driven by rising budgetary pressures related to aging populations, which affect pension and healthcare spending, as well as the transition to green energy. Furthermore, member states are facing increased defense expenditure requirements. The IMF estimates that the total combined impact of these additional costs will reach 5% of GDP by 2040. Georgieva advised that nations with limited fiscal space must pursue fiscal neutrality when increasing defense spending, suggesting potential tax hikes or cuts to other public expenditures. To mitigate these risks, the IMF emphasized the necessity of structural reforms and the completion of the single European market. Such reforms are intended to stimulate economic growth and reduce the necessary fiscal adjustments required to place debt on a downward trajectory. According to the IMF, even moderate growth-enhancing reforms could reduce the required fiscal adjustment by approximately one-fifth.