Economy 5 min read By Alice Ashford
IMF Urges Global Debt Tightening as Growth Falls Short
IMF Managing Director Kristalina Georgieva says growth alone cannot resolve mounting national debt, calling for fiscal tightening as rising bond yields strain markets and low-income countries face historic interest burdens.
The International Monetary Fund has warned that economic growth alone will not be enough to bring soaring national debt under control, urging the United States and other wealthy nations to pursue fiscal tightening as rising borrowing costs strain the global financial system.
IMF Managing Director Kristalina Georgieva said on Wednesday that US Treasury Secretary Scott Bessent and other American leaders recognise the federal deficit and national debt are too high, but that growth cannot deliver the necessary adjustments quickly enough. «We believe that growth, of course, helps, but it cannot deliver fast enough the necessary adjustments,» Georgieva said at the autumn meeting of the IMF and World Bank in Bangkok. «There is no magic. You have to go in a direction of tightening, bringing it down, bringing the deficit down.»
The warning comes as rising bond yields, reflecting higher premiums demanded by investors for taking on greater risk, have been disrupting financial markets. The United States now carries more than $40 trillion in national debt, and efforts to bring it under control through what Georgieva and other experts call «fiscal consolidation» have suffered setbacks from heavy spending during the COVID-19 pandemic and since.
Rodrigo Valdes, director of the IMF's Fiscal Affairs Department, said fiscal risks are rising and a proper reaction is largely absent in many countries. «In major advanced economies, the effect of fiscal indiscipline does not stop at the border. It travels to the rest of the world,» he said.
The burden falls most heavily on low-income countries. The IMF's latest Fiscal Monitor said interest payments among the world's poorest nations have reached historic highs relative to revenue, while declining amounts of aid are creating gaps that some countries have been unable to finance. That is forcing governments to choose between supporting their most vulnerable people and meeting debt repayment obligations.
«The Global South is paying the price for rising interest rates in wealthier countries,» UK Foreign Secretary Ed Miliband said at an event on the sidelines of the IMF meetings. «We need a new deal on debt, a deal that supports countries to repay over longer time horizons and, crucially, refinancing with better rates to give developing countries precious fiscal space.»
Alexander De Croo, former Belgian prime minister and administrator of the United Nations Development Programme, said the median developing country pays three times as much in interest as developed countries, with nearly 10% of government spending on average going toward debt repayments. High fuel and fertiliser prices, the effects of the El Niño weather phenomenon and rising borrowing costs have left many low-income countries with little room to recover. «We don't see really a light at the end of the tunnel,» De Croo told the Associated Press.
Global inflation, partly resulting from high energy costs due to the Iran war, has pushed interest rates to multidecade highs, adding to the burdens of the world's poorest nations. Creating jobs is another priority, particularly as artificial intelligence threatens to make many traditional occupations obsolete. More than 1.2 billion young people are expected to enter the global workforce over the next decade, while forecasts suggest only 400 million net new jobs will be created.
The UNDP this week announced its «Jobs for Prosperity» initiative to bring together governments, development banks such as the World Bank and private businesses to encourage investment in sectors including tourism, healthcare and food processing. De Croo said the initiative would help countries attract investment by strengthening governance and policies and developing pipelines of «investible projects».
Separately, the IMF, Bank of Thailand and World Bank Group announced a «Bangkok Blueprint» on Wednesday to combat cybercrime, financial fraud and online scams. The announcement came a day after cyberattacks caused refrigeration systems to overheat at hundreds of stores in France.
5
