From Latin America to Asia, from Ukraine to Africa, the world is consumed by anger and unrest. A powerful wave of public protests, conflict and strife is sweeping across the planet. The Carnegie Endowment Global Protest Tracker follows live data on global demonstrations and conflicts. It lists over 107 active anti-establishment protests in 57 countries in its latest update in September. 

Many causes fuel this global discontent, ranging from surging energy prices, the cost of living, housing, stagnant wages, generational despair, public service decay, and political disenchantment to corruption, all amplified by social media and networks. Yet one issue that hitherto was strident in public discourse is muffled – the perilous state of public finances.

The Public Debt Explosion
Undoubtedly, all the causes of the global social strife have fiscal roots, but explicit concern about the size of debt and deficits is deafeningly silent. This is inexplicable. For the fiscal year that ended on September 30th, US publicly held federal debt reached 100% of gross domestic product for the first time in 80 years, with deficits above 6% of GDP driving its monotonic rise.

The debt level is more than triple its 2001 level, and analysts expect the post-World War II record of 106% to fall in a few years.

France could be a sign of what awaits. Its debt-GDP ratio is worse at 119%, and deficits are in the same league as the US, although its economy is weaker. Attempts to curb spending have brought down four prime ministers in three years. As investors lost hope of any fix, they began dumping French bonds, sending yields soaring and slowing an already weak economy.

The UK’s public debt is hovering around 95 % of GDP. Even in conservative Germany, the debt ratio will cross 65 % this year. Japan has the highest public debt ratio among advanced economies at over 200 %.

Emerging and developing countries have relatively modest ratios, averaging 77 %, but this is on a rising trajectory and will cross 84% by the year 2031. The situation is similar in China, where the official number is 99.2%, but the IMF places it at 107 % after including sub-national debt, including that of municipal bodies.

The Voice of Markets
Even as fiscal concerns have gone unheeded in the widening public pique, financial markets have spoken with a sharp, synchronised global sell-off in sovereign debt, driving government borrowing costs to their highest levels in decades.

Markets are no longer viewing government bonds as safe-haven assets. Instead, they are actively demanding steep penalties from countries running large deficits or facing domestic instability. 

Ten-to-thirty-year yields are at multi-decade highs across the world. With the return of bond vigilantes, markets are exacting a steep term premium, which is the extra compensation to cover the risk of holding a government's long-term debt.

It is estimated that interest payments on public debt account for 2-3% of global GDP.  Moreover, sovereign debt forms the fundamental baseline for global finance. As government yields push higher, the ripple effects are choking broader stock and corporate credit markets.

Why are Fiscal Concerns Muffled in the Global Unrest?
Concerns about surging debt levels and widening fiscal deficits are being drowned out by the cost-of-living crisis on the streets. Fiscal mismanagement is being experienced directly at grocery shops and petrol pumps.

Consequently, incentives for governments to rein in fiscal excesses are trapped between two irreconcilable forces: an angry public demanding wider and stronger social safety nets and a bond market that asks for immediate fiscal rectitude.

Viral emotional themes dominate leaderless digital movements, frequently tipped by Gen Z coalitions that utilise social media to coordinate spontaneously. While they are effective in weaponising the universal outrage against corruption or institutional failure, they overwhelm concrete fiscal reform platforms.

Governments worry that attempts to broaden tax bases or roll back subsidies or fiscal stimuli will trigger mass outrage in these times, being seen as a breach of the social contract.

In fact, governments around the world face strong incentives to run ever larger fiscal deficits and add to debt levels.

Election cycles, military spending, the memory of implicit central bank backstops during the pandemic, which are still being unwound in several parts of the world, the resilience of the global economy in the face of persisting wars, and the muscular conduct of trade and industrial policies are all contributing to the conscious lapses in fiscal discipline.

What Happened to Fiscal Rules?
Fiscal rules in the form of legal, constitutional, or institutional caps designed to restrain public deficits and national debt have undergone a fundamental breakdown over the past decade.

Fiscal rules have largely been suspended, rewritten, or continuously bypassed in the face of compounding global shocks.

During the COVID-19 pandemic, governments across both advanced and developing economies activated emergency escape clauses embedded in their fiscal frameworks.

Rules capping deficits were frozen to allow massive emergency relief spending, health outlays, and social safety net expansions. What was intended as a temporary emergency suspension has permanently elevated spending expectations and sovereign debt ratios worldwide.

The most prominent global benchmark for fiscal rules is the European Union’s Stability and Growth Pact, which set hard limits, keeping budget deficits below 3% of GDP and debt below 60% of GDP. In the post-pandemic period, the framework has shifted toward medium-term, country-specific adjustment plans, allowing more flexibility for high-debt countries to phase in adjustments over 4 to 7 years.

National fiscal rules, such as Germany’s constitutional Schuldenbremse, have increasingly relied on special off-budget funds, emergency exemptions, or redefinitions of investment.

Geopolitical conflicts and climate targets have created intense political pressure to exclude capital investments in defence, energy security, and green technology from traditional fiscal debt calculations. As a result, even after the suspension era was formally ended by the European Commission, excessive deficit procedures have been launched against almost all major eurozone economies, rendering them meaningless.

The lesson learned is that when rigid financial rules clash with urgent social stability, security demands, or economic shocks, governments adapt or suspend the rules to survive.

An Oasis in the Desert of Fiscal Profligacy
India presents a unique case of striving for balance between statutory rules, structural spending demands, and political management of social pressures.

The statutory anchor for fiscal restraint, the Fiscal Responsibility and Budget Management (FRBM) Act of 2003, aimed for a central government fiscal deficit target of 3% of GDP and a general government debt limit of 60%.

During the pandemic, India invoked legal escape clauses under Section 4(2) of the Act. The fiscal deficit spiked to 9.2% of GDP in 2020–21, pushing general government debt close to 90% of GDP. 

In the ensuing years, India transitioned toward a broader glide path aimed at lowering central government debt toward 50% of GDP and general government debt to 60% by 2030–31. 

Currently, India relies heavily on targeted welfare transfers, such as direct benefit transfers (DBT), food subsidies (PM-GKAY), rural employment guarantees (MGNREGA), and cash support for farmers. While these cushion cost-of-living shocks and diffuse social unrest, they create high baseline expenditure commitments. Several states face fiscal strain from off-budget commitments.

India has avoided the unhedged debt spirals seen in advanced and some emerging economies. Over 90% of India's public debt is held in domestic currency and owned predominantly by domestic institutional investors.

This insulates the state from external currency shocks. Rather than cutting public spending outright to meet deficit caps, India relies on GDP growth to naturally compress the debt-to-GDP ratio while redirecting expenditure toward productive capital creation and away from pure consumption subsidies other than those mentioned earlier.

Yet, markets have seen sell-offs like in other countries, especially at the longer end of the yield curve, signalling the demand for a higher term premium due to excessive supply of government paper, inflation risks, global spillovers and volatile crude prices.

In 2027-28, tilting the bond issuance calendar towards shorter-to-medium tenors, switch operations, operation twists by the RBI and shielding investors from mark-to-market losses may be a band-aid but not an enduring solution.

Reaffirming the commitment to the debt rule by further reduction of primary balances (fiscal deficits adjusted for interest payments) may provide the much-needed reassurance and confidence that markets seek.