NEW YORK (Reuters) -Efforts to battle future economic downturns are likely to lean more on central banks slashing interest rates than on fiscal lifelines, as high global public debt in developed markets limits governments' ability to spend, said U.S. bond giant PIMCO.

In the U.S., a tax bill currently being debated in Congress is expected to add trillions to an already surging national debt over the next decade, while European governments are planning to ramp up spending to boost growth and strengthen defence.

California-based PIMCO, a debt-focused investment firm managing $2 trillion, does not expect debt levels in developed economies to surge dramatically in the near term, but elevated budget deficits and high interest rates will keep bond markets fragile and limit governments' ability to support their economies if recessions hit.

"Before the pandemic, when interest rates were low, fiscal space was ample and monetary policy space limited; now, when interest rates are higher, fiscal space is limited and monetary policy space ample," Peder Beck-Friis, an economist at the firm, said in a note to clients on Wednesday. "That makes front-end rates more attractive."

PIMCO expects bond investors in developed markets will require higher compensation to hold long-dated debt due to elevated bond issuance going forward, leading to steepening yield curves - which occurs when the yield premium of long-dated debt increases over the yields of shorter-dated bonds.

Even so, the bond firm sees little risk of an impeding debt crisis. High borrowing levels could lead to episodes of market volatility, but governments are expected to eventually address deficits via spending cuts or higher taxes, PIMCO said.

In the U.S., where interest payments now account for nearly 14% of all its government spending, similar increases in debt-servicing costs have historically preceded periods of fiscal tightening, said PIMCO, referring to fiscal consolidation after World War Two, during the Ronald Reagan administration in the late 1980s, and under President Bill Clinton in the 1990s.

"Debt dynamics ... appear fragile in a few countries, perhaps more so than before," said Beck-Friis. "But these issues seem chronic, not acute - unlikely to trigger a sudden fiscal crisis."