Top 10 risks for the government and public sector in 2025

Top 10 risks and how to mitigate them

1. Inability to achieve sustainable public finances

Around the world, governments have been spending to support their economies through the shocks of recent years. The result is high levels of global public debt, which the International Monetary Fund (IMF) projects could reach 115% of GDP by 2026. 

Years of high interest rates have also increased the cost of borrowing and servicing debt. This could threaten investment in public infrastructure — hampering growth and squeezing public finances even further. 

To avoid a full-blown fiscal crisis, governments must start making difficult decisions now. By refocusing on indicators that determine the long-term value of public money based on the outcomes achieved, they can better prioritize investments and allocate resources. They can also make a better case for any necessary cuts to public spending.

2. Weak or unsustainable public growth

The global election supercycle showed that positive economic growth data can disguise a very different reality for many constituents. In fact, it increasingly reflects spending by top income brackets.

Add to this fragility the potential impacts of tariffs, aging populations and upward cost pressures resulting from climate change, and the medium-term trajectory for global growth remains low. This is partly because high levels of public debt are impeding public investment in foundations of growth such as education and health.

That said, green investments made in recent years are starting to pay off, proving the value of accelerating to net zero. Governments can use their limited resources to drive this kind of sustainable growth and incentivize sustainable consumption. Exploring measures of economic health other than GDP can also give a more holistic view of the realities people face.

3. Labor shortages and growing work informality

The world is running out of workers. Employee expectations and mobility have gone up. And according to the International Labour Organization, more than half of the global workforce is employed in the informal economy.

Together, these factors are threatening growth by shrinking tax bases, lowering organizational resilience and increasing supply chain disruptions. Skills shortages and disparities in access to education are undermining efforts to future-proof workforces. And the nature of work and skills is changing fast, meaning that organizations that don’t invest in continuous learning could be left behind.

Governments can shape this increasingly fluid labor market by investing more in drivers of economic development and growth, such as education. They can also galvanize the private sector to invest in formalizing work and upskilling employees, and regularly review how they measure labor market health.

4. Deficient digital capacity and cybersecurity

Protecting sensitive data is a top priority for public sector organizations, but aging technology infrastructure, siloed systems and technical debt make them vulnerable to cyber attacks.

This threat is likely to accelerate in 2025 as artificial intelligence (AI) and quantum computing technologies mature. So, it’s urgent that governments and public sector institutions future-proof digital security by adopting cloud-based services. That’s as well as building a pipeline of cybersecurity professionals and increasing the digital and cyber resilience of public servants.

Challenges around skills shortages and data sharing are also preventing many organizations from using digital technologies to improve how they serve constituents. Upskilling employees to work with technology will unlock benefits, while improving interoperability and standardizing data governance, ethics and security controls will enable better use of data.

5. Failure to adapt to a new geopolitical landscape

After a decade of growing geopolitical complexity, the world is a more multipolar place. This means a greater number of actors are influencing international politics and the day-to-day agendas of government and public sector institutions.

The success of antiestablishment candidates during the global election supercycle also showed that people are seeking confident leadership in the face of growing uncertainty. This could in turn lead to a more transactional and opportunistic way of engaging internationally. It could also accelerate the trend for geopolitical divisions to spill over into global trade and conflict.

In this volatile environment, diplomacy becomes crucial. Where politics impede high-level dialogue, strong working-level relationships across agencies and borders will be key to de-escalating tension. At the organizational level, investing in data and predictive analytics will equip governments to better anticipate and prepare for disruption.

6. Limited or no supply chain visibility and traceability

Implementing on- or near-shoring strategies has helped to mitigate some of the impacts of fragile supply chains. But government and public sector institutions still lack the traceability and visibility needed for resilience.

For example, many don’t have the information to monitor their supply chain networks in real time or to understand who their suppliers are below a certain threshold. This limits their ability to identify and mitigate risk and potential disruption before it becomes a crisis.

Building the capability to manage third-party risk will allow institutions to understand and act on the dependencies that create risks within global supply chains today. Using integrated technology solutions to modernize supply chain and logistics infrastructure will improve visibility and traceability. And upskilling talent will enable institutions to take advantage of new technologies.

7. Low employee resilience hampering public sector talent advantage

Government and public sector leaders are dealing with unmanageable workloads and an ever-growing public need for services. With levels of internal trust low, and employees in the sector some of the least likely to quit , employee resilience and employer attractiveness are suffering. 

The added challenges of competing with the private sector on salary, and volatile political cycles, make it unsurprising that government and public sector institutions globally struggle to recruit. Unless they invest in building a talent advantage, they risk creating an institutional brain drain as the workforce ages.

It’s critical that government and public sector institutions use technology to reduce the administrative burden on employees. Expanding total rewards, a sense of purpose and talent development systems will also help to build a talent advantage and fill critical vacancies.

8. Failure to close the gap between climate ambition and action

While many governments have created climate action policies and regulations that come into full force this year and next, more public leadership is clearly needed. Of the respondents to the EY Future Consumer Index, 77% believe it’s government’s responsibility to achieve better social and environmental outcomes. Yet only 34% say their government is taking enough action. 

According to the Emissions Gap Report 2024, from the UN Environment Programme (UNEP), a “quantum leap in ambition” is required to prevent catastrophic global warming. To achieve it, governments need to submit more ambitious Nationally Determined Contributions (NDCs) early this year. Narrowing the sustainable infrastructure funding gap by creating incentives to unlock blended finance is also urgent. Internally, greening government operations will help build momentum and public trust. Where bolder action isn’t possible at a national level, it will be up to local government leaders to keep advancing a green transition.

9. Lack of resilience to climate-related shocks

As weather and heat patterns intensify, so do the economic and human costs. Already, governments are struggling to respond effectively to environmental health issues and scarce resources — leading to increasing rates of conflict, hunger and migration.

Mitigating these risks requires developed countries to concessional finance climate adaptation in the developing and island nations most at risk. But the US$100b goal promised at COP15 in 2009 was only reached in 2022 — two years past the original deadline.

Meeting the new collective quantified goal, set at COP29 in November 2024, is critical for enabling the most-at-risk countries to achieve their NDC targets. It will also enable these countries to invest in resilience-building tools, such as multi-hazard early warning systems, which the UNEP says can reduce damage from disruption by 30%. Governments can help by creating stronger incentives for the private sector, integrating climate risk into public budgets and promoting community-driven adaptation projects.

10. Unconnected to constituent experiences and needs

Slow, insufficient government responses to global shocks, and a growing perception that government is failing most people, have damaged social cohesion and public trust in institutions.¹ They have also propelled the success of antiestablishment candidates in the global election supercycle.