US public debt hits 98% of GDP, raising fiscal concerns

America's public debt, now at 98% of GDP, represents a significant fiscal challenge.

This figure has surged from 40% in 1990, and neither major political party has proposed effective solutions, Caliber.Az reports via foreign media.

The problem is compounded by the fact that, irrespective of the election outcome, the next presidential term is likely to exacerbate the fiscal situation.

The IMF's recent data highlight America's high debt levels, ranking it eighth globally in terms of net public debt-to-GDP ratio. Although Japan and Italy exceed the US in this regard, America's rapid debt accumulation and its central role in the global economy make the situation particularly worrisome.

Debt troubles in advanced economies like the US began with the 2007-08 financial crisis and worsened during the 2020 pandemic. While debt levels were previously stabilized relative to other G7 nations, the IMF projects a continued rise in US debt. One crucial factor in debt sustainability is whether economic growth outpaces the interest rates on debt.

From 2008 to 2019, low interest rates allowed economic growth to exceed borrowing costs, stabilizing the debt ratio. However, with inflation under control and interest rates higher, debt servicing costs are expected to increase significantly. In 2024, the government will spend $728 billion on debt service, which will rise as old, low-interest debt is replaced with higher-interest obligations.

Future fiscal challenges include the impact of an ageing population on social services and rising defence and renewable energy costs. These factors, coupled with potential higher interest rates if creditors become wary, may force Congress to take more decisive action on the deficit.