ECONOMYNEXT – Global growth prospects are dimming and government debt in advanced nations in particular are rising, the International Monetary Fund said, after more than a decade of heedless spending for ‘stimulus’ advocated by macro-economists themselves.
The IMF upgraded its 2025 growth forecast to 3.2 percent in the latest World Economic Output report, which is 0.2 percent below the figure before Trump tariffs, and to 3.1 percent in 2026, with global debt set to rise.
The impact of Trump tariffs was lower than first expected due to reduced rates, but immigration controls would also impact output in the future, the WEO said.
Fiscal Space Dogma
Since the collapse of the housing bubble fired by the Fed to ‘reverse deflation’, macro-economists have been advocating heedless government spending to boost growth (stimulus) with the IMF itself adding to Keynesian dogma claiming there was ‘fiscal space’ to do so.
Some East Asian countries, however rejected the dogma to shatter debt, including during the pandemic when pressure from macroe-conomists to overspend was high.
Sri Lanka which defaulted after macro-economists printed money for potential output and cut taxes, growth has started to recover amid a very tight fiscal policy including a cut in capital spending.
In the run up to the default project priorities have been questioned before the crisis amid ‘white elephant’ claims.
Pressure to spend more on capital projects regardless of priority is now re-emerging in Sri Lanka, with projects such as the Ruwanpura Expressway being re-kindled.
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The current problems in the world come in part from the outright rejection of the classical Say’s Law among other inflationist doctrines, analysts say.
Like in Sri Lanka, debt was expanded in advanced nations not due to war, but as part of deliberate policy pushed by macro-economists in a regression to the doctrines of Keynes and other inflationists including John Law.
Now there was no more ‘fiscal space’ for stimulus in more failed attempts to ‘protect growth’ in a get-rich-quick schemes.
Backpeddling
“Rebuilding fiscal buffers and safeguarding debt sustainability remain a priority,’ the IMF said, back peddling furiously from previous heedless spending dogma that drove the world to high levels of debt after the collapse of the housing bubble.
“Fiscal policy remains too loose in many of the largest advanced and developing economies.
“Medium-term fiscal consolidation should involve realistic, balanced plans that combine spending rationalization and revenue generation. Any new support measures should be temporary, well-targeted, and offset by clear savings.”
The post 2008 renewed doctrine that money printing, can ‘protect’ growth and not stability (so-called dual mandate) was still there.
“Monetary policy should be calibrated to balance price stability and growth risks, in line with central banks’ mandates,” the WEO said.
The report comes as President Donald Trump attacks the Federal Reserve on the same belief, and in countries like Sri Lanka aggressive monetary accommodation supported by IMF backed frameworks to boost ‘potential output’ with ‘flexible;’ policies have already led to default.
In Sri Lanka ‘potential output’ was written into a monetary law backed by the IMF.
The parliament has given ‘independence’ to a central bank which is demanding 5 percent inflation as floor rate from country where poverty rocketed with a currency collapse.
In the US, post-Housing Bubble IMF-style thinking on fiscal stimulus was still prevalent.
“In the United States, the general government fiscal-balance-to-GDP ratio is expected to deteriorate by 0.5 percentage point in 2026, largely reflecting the passage of the One Big Beautiful Bill Act (OBBBA) and despite an offset of about 0.7 percentage point of GDP from projected tariff revenues,” the report said.
“Under current policies, US public debt fails to stabilize, rising from 122 percent of GDP in 2024 to 143 percent of GDP in 2030, 15 percentage points higher than projected in April.
“In the euro area, the debt-to-GDP ratio is expected to reach 92 percent in 2030, up from 87 percent in 2024.
“By contrast, governments in emerging market and developing economies, on average, are projected to modestly tighten fiscal policy in 2026 by about 0.2 percentage point of GDP, reversing the widening expected in 2025.
“In China, the deficit is expected to narrow slightly through 2030, following a widening of 1.2 percentage points in 2025. Public debt in emerging market and developing economies continues to rise, reaching 82 percent of GDP in 2030, compared with just under 70 percent in 2024.” (Colombo/Oct15/2025)
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