Driven mainly by the United States and China, the world's two largest economies, public debt is higher and growing faster than projected before the COVID-19 pandemic, the International Monetary Fund's (IMF) top fiscal expert said Wednesday.

About 60% of countries are projected to see their public debt to gross domestic product (GDP) ratios decline through 2028 after COVID-19-related surges. However, many large economies, including Brazil, China and the U.S., are seeing rapid growth in their debt-to-GDP balances.

Vitor Gaspar, director of the IMF's Fiscal Affairs Department, said global public debt soared to almost 100% of GDP in 2020 before posting its steepest drop in 70 years by 2022. However, it remained about 8% points above the pre-pandemic level.

Rather than normalizing, he said the ratio was expected to rise again this year, hitting 99.6% of GDP in 2028, the last year of the IMF's forecast horizon.

"There are a significant number of large advanced economies, large emerging market economies, where the public debt-to-GDP ratio is projected to grow fast. This list of countries includes Brazil, China, Japan, South Africa, Turkey, the U.S., and the U.K.," Gaspar told Reuters. "And the dominant influence comes from the two largest economies."

By contrast, the debt ratio increase during the pandemic was moderate in low-income developing countries. He said it is expected to drop to levels forecast before the pandemic in coming years. In its Fiscal Monitor report, the IMF noted that tight budgetary constraints and rising food insecurity had stalled poverty reduction and hampered further progress toward the U.N.'s Sustainable Development Goals.

Avoiding the 'doom loop'

In the future, all countries should closely align their fiscal and monetary policies to combat inflation and build buffers that could be used in a crisis, Gaspar said, noting that countries without sufficient buffers suffered longer and deeper recessions in the event of an emergency.

The IMF's report warned that risks were high. Therefore, reducing debt vulnerabilities should be an "overriding priority," especially in low-income developing countries where 39 countries were already in or near debt distress.

It said recent banking problems in the U.S. and Switzerland had heightened risks of an expanding financial crisis, which would put even more pressure on public sector balance sheets if governments were called in to help.

To guard against further and worsening problems, regulators should consider strengthening crisis management frameworks and their regimes for dealing with troubled institutions.

"Among the worst possible crises are crises where you have a financial crisis simultaneously with a sovereign debt crisis, and that is labeled as the doom loop," Gaspar said. "Doom loops must be avoided."

He said that as long as financial risks were contained, the fight against inflation was the biggest priority, adding that tighter fiscal policy could also curb demand, reducing the need for more aggressive interest rate increases.