IMF: Budget Deficits to Reach Their Highest Levels Since the Pandemic

The budget deficit in advanced economies is expected to rise to 5.2% of GDP in 2026, its highest level since 2021, according to the IMF forecast published in October. The figure will reach 8.5% in the United States and exceed 8% in China. The Fund warns of growing government borrowing and rising debt-servicing costs.

Global Economy and IMF Fiscal Forecasts

The global economy will expand by 3.1% in 2026 and 3.4% in 2027, according to the International Monetary Fund. The inflation forecast for this year stands at 4.7%. High energy and food prices are hampering the recovery in economic activity. Additional spending to support households is putting pressure on the budgets of countries that already carry substantial debt obligations.

The IMF forecasts a fiscal deficit of 5.2% of GDP for advanced economies. A higher figure was last recorded during the pandemic, when governments funded large-scale emergency support programs. Conditions in 2026 are different: spending remains elevated, while servicing previously accumulated debt has become more expensive because of higher interest rates.

In its international statistics, the Fund uses the general government net lending/borrowing indicator, which measures the balance between revenue and expenditure across the general government sector. It includes central, regional and local government budgets. The IMF classifies China as an emerging market and developing economy, so it is not included in the aggregate figure for advanced economies. This distinction matters when comparing forecasts.

Fiscal Deficits in 2026, % of GDP

United States: Fiscal Deficit to Rise to 8.5% of GDP

The IMF expects the US fiscal deficit to increase from 7.1% of GDP in 2025 to 8.5% in 2026, a rise of 1.4 percentage points. The forecast covers all levels of general government and should therefore not be equated with the federal budget deficit alone.

Expenditure exceeding budget revenue requires additional borrowing. The government issues Treasury securities, including new bonds to repay maturing obligations. If yields on new issues rise, interest expenses increase, reducing the funds available for other government programs.

The US market stands out for the scale of government borrowing and the central role of Treasury securities in the global financial system. High government financing costs can keep borrowing rates elevated for corporate issuers. This is one channel through which fiscal problems in the United States affect other economies.

China: Fiscal Deficit to Exceed 8% of GDP

China's general government deficit will exceed 8% of GDP, according to the IMF forecast. The international estimate covers a broader range of obligations than the central government's official budget plans. Consequently, the figures released by the Chinese authorities may differ from the Fund's estimates.

The IMF expects China's economy to grow by approximately 4.5% in 2026. Government expenditure helps support domestic demand and investment, but a large deficit means that current budget revenue is insufficient to finance this spending. Continuing the policy requires additional borrowing.

The return on publicly financed projects is important for fiscal sustainability. When investment stimulates economic activity and raises tax revenue, debt is easier to service. If revenue growth is weak, government obligations continue to accumulate, limiting policymakers' ability to stimulate the economy further.

Global Public Debt and Rising Debt-Servicing Costs

According to the IMF, global public debt could reach 100% of world GDP by 2029. The estimate was published in April 2026 and repeated in materials prepared for the October 14 press briefing. In its official Fiscal Monitor statement, the Fund warned of rising fiscal risks, higher interest expenses and continued pressure on government budgets.

The fiscal burden increases as governments refinance their obligations. Maturing bonds are repaid and replaced with new securities issued at prevailing market rates. Higher sovereign bond yields lead to larger interest payments. Short debt maturities amplify the effect because borrowers need to refinance more frequently.

The IMF warns that the consequences of fiscal policy in major advanced economies extend beyond their own financial markets. Higher sovereign bond yields influence the cost of capital in other countries. Borrowers reliant on foreign lenders and frequent debt refinancing are especially vulnerable.

What Measures Does the IMF Recommend?

The Fund recommends that governments facing large deficits gradually reduce their borrowing needs and rebuild fiscal buffers. Measures should reflect each economy's circumstances: abrupt spending cuts can slow growth, while delaying fiscal adjustment increases future interest payments.

The IMF places particular emphasis on supporting households when energy prices rise. It considers temporary, targeted payments more effective than broad subsidies without clear end dates. Such subsidies are more costly for governments, divert resources from other programs and may weaken incentives to conserve energy.

Another priority is improving the efficiency of tax systems. The IMF calls for better tax administration and the removal of distortions that discourage investment and business activity. Additional economic growth can boost revenue without continually raising tax rates, but governments still need to keep expenditure under control.

Implications for Capital Markets and Real Estate

Rising public debt affects bond markets and lending conditions. When governments must offer investors higher yields on their securities, financial institutions take those rates into account when pricing loans. This increases financing costs for businesses, infrastructure developments and real estate projects.

For real estate, borrowing costs and a property's ability to generate recurring income are particularly important. Higher interest rates weaken project economics when a large share of a purchase or construction budget is financed with debt. However, a change in a country's fiscal indicators does not automatically lead to lower property prices: local demand, supply and rental market conditions also matter.

International Investment analysts note that a large government deficit makes financing terms a more important part of investment analysis. Two properties with similar rental yields can deliver very different results once loan payments are taken into account. Investors should stress-test their projections against higher rates, more expensive refinancing and temporary declines in rental income.

The IMF's October forecast illustrates why assuming that borrowing will soon become cheaper carries greater risk. When choosing a project, investors may favor models capable of generating cash flow at current financing costs. For capital-intensive transactions, financial resilience matters more than expectations of rapid asset price appreciation.

Frequently Asked Questions

What fiscal deficit does the IMF forecast for advanced economies in 2026?

The general government deficit in advanced economies is estimated at 5.2% of GDP in 2026, its highest level since 2021.

How will the US fiscal deficit change in 2026?

According to the Fund, it will increase from 7.1% of GDP in 2025 to 8.5% in 2026. The estimate covers all levels of government, including state and local authorities.

What fiscal deficit is expected in China?

The IMF forecasts a figure above 8% of GDP. Its methodology covers a broader range of government finances than the budget approved by China's central authorities.

What is the difference between a fiscal deficit and public debt?

A fiscal deficit shows how much government expenditure exceeds revenue over a given period. Public debt is the accumulated stock of obligations that governments must service and repay.

When could global public debt reach 100% of GDP?

The IMF projects that global public debt could approach 100% of world GDP by 2029. This is a forecast, not a level already reached.

Why can rising public debt make loans more expensive?

As borrowing needs increase, governments may have to issue bonds at higher yields. Those yields influence the market rates at which banks and companies obtain financing.

How do fiscal deficits affect real estate markets?

More expensive financing raises mortgage and property development borrowing costs. The effect on property prices depends on demand, supply and conditions in each local market.

What does the IMF recommend to reduce fiscal risks?

The Fund advocates gradual deficit reduction, more efficient spending and stronger tax administration. When energy prices rise, it recommends temporary, targeted support measures.