Last week, the International Monetary Fund (IMF) held its annual meeting, unusually shifting its focus from climate change and women's rights to the critical state of public finances, directly targeting major developed economies. The IMF Managing Director's opening remarks were interpreted by the market as a wake-up call regarding fiscal discipline within the G7: the cracks are widening, and repairs should be done sooner rather than later.

The annual meeting shifted its focus to the public finance crisis.

At its annual meetings last week, the IMF preemptively responded to the Trump administration's demand that the fund "return to its core principles." The meetings shifted their focus away from climate change and women's rights, concentrating instead on the precarious state of public finances, particularly in major developed economies. At the opening of the meetings, IMF Managing Director Kristalina Georgieva stated, "What is the loudest appeal we can make to policymakers right now? Repair the house of finances before the cracks widen." Her message was specifically addressed to the G7 countries, which are too large to rely on the IMF for bailout financing. With the exception of US Treasury Secretary Scott Bessent, who was absent from the Bangkok meeting, most finance ministers nodded in agreement and listed their domestic deficit reduction projections, but few committed to immediate action.

The fiscal recovery record is worrying, and deficit expectations have been repeatedly revised upwards.

This wait-and-see attitude has its practical reasons: public finances can run on an unsustainable path for a long time until they finally explode. In fact, the G7's record on fiscal repair is even worse than Georgieva outlined. Over the past decade, the IMF has had to repeatedly revise its deficit forecasts for the G7. Before the pandemic, the fund typically expected national deficits to stabilize at around 2.5% of GDP, while the latest forecast this month shows deficits stabilizing above 6%. This figure implies that debt will continue to climb, ultimately forcing at least one G7 member into crisis.

Some countries can rest easy for now, while Germany, Japan, and Italy each have their own strengths.

However, not all countries are in dire straits. Canada and Germany are unlikely to be victims of market turmoil, both boasting low debt and a history of prudent financial management. Germany recently increased its deficit to fund defense and investment spending that shouldn't have been so drastically cut in the first place. This pair is largely worry-free. Japan can also be temporarily excluded from the list of "spendthrift" nations. Despite having the second-highest net debt among the G7 in 2026, Japan's fiscal deficits have consistently been far below projected levels for years. While politicians like Sanae Takaichi have spoken eloquently about fiscal expansion, the Ministry of Finance has always held the reins firmly. After Japan, things start to get tricky. Italy has one of the highest net debt levels among the G7, but the Eurozone crisis of 2010-2015 enabled it to consistently achieve a major surplus, a goal it has consistently met, and its debt ratio has remained stable—not the recipe for a crisis.

Britain's "all talk and no action" approach raises serious questions about its fiscal integrity.

Britain may have received excessive praise from the IMF last week, with high hopes placed on its fiscal consolidation plan, but next week's budget is likely to reveal signs of a downturn. Britain has a troublesome, "unreliable boyfriend" habit: always promising integrity on deficits but rarely delivering. It needs to produce tangible deficit reductions, not just empty words.

France and the United States are crashing into a wall of debt.

This ultimately places the pressure on France and the United States. Both have not only promised deficit targets that they have never met, but also simultaneously face high deficits and rapidly rising debt levels. According to the latest IMF forecasts, by 2031, both France and the United States will have net debt ratios exceeding Japan's, and among the G7 countries, only Japan has a history of exceeding IMF forecasts. Adding to the difficulties, the political environments in both countries are unfriendly to the reforms necessary to reduce deficits. In France, far-right leader Marine Le Pen talks about responsibility but opposes pension age reform, a core measure to restore the health of public finances, while more centrist politicians struggle to pass budgets. In the United States, neither of the two major political parties believes that "fiscal prudence" will bring any electoral benefits.

Conclusion

The IMF deliberately emphasizes the "urgency" of reforms rather than predicting an "imminent disaster," but fiscal problems, like population structure, are almost entirely predictable except at the moment of a dam breaking. Within the G7, France and the United States are accelerating towards the wall of debt, with inevitably dire consequences. The only uncertainty is which country will crash into it first.