Rich nations must cut debt as global shocks push up borrowing costs, IMF chief tells BBC
In an interview with the BBC, Kristalina Georgieva says economic shocks had pushed "debt levels up like a staircase not to heaven".
Rich countries must reduce debt as global shocks drive up borrowing costs, IMF chief tells BBC
The world’s advanced economies, including the UK and US, need to rein in borrowing and lower debt levels after weeks of soaring government interest costs, the head of the International Monetary Fund (IMF) has warned.
In an exclusive interview, Kristalina Georgieva said global economic shocks had been “pushing debt levels up like a staircase not to heaven” while governments had done “no action to contain that service cost”.
“[It’s] time to take that action,” she said, adding that politicians needed “courage” to make the required moves.
Her intervention comes as government borrowing costs have jumped in response to wars disrupting oil supplies, which has driven inflation higher.
Rising global borrowing costs have also affected the UK government ahead of UK Prime Minister Andy Burnham’s first Budget next month, with speculation growing over possible tax and spending measures.
The latest figures show borrowing — the gap between tax receipts and government spending — was £18.3bn ($24.4bn) in August, nearly a fifth higher than a year earlier and above official forecasts.
Debt interest for the month was also the highest August figure since monthly records began in 1997.
Higher borrowing costs have also hit the US, the world’s biggest economy, where debt has climbed past $40tn. That total has doubled in a decade, raising concerns at home and overseas.
Speaking on the sidelines of the United Nations General Assembly, Georgieva said the IMF’s message to advanced economies was that although some economic forces were beyond governments’ control, they did control domestic policy.
“There are these two things that must be done: bring debt levels down, put fiscal consolidation as a priority, and make sure that the central banks deliver on their mandate for price stability,” she said.
“It is impossible to stress strongly enough how critical it is to get the courage to take the steps that are necessary. These are politically tough steps to take, but necessary steps to take.”
When asked specifically about the UK’s higher interest costs compared with other major economies, Georgieva said its situation was “not very different” from others.
She highlighted “fairly consistent action” on reducing debt and praised planning and housing reforms, adding that advanced economies “don’t have the cash” to stimulate growth and therefore must depend on reforms that encourage private-sector investment.
Governments worldwide raise funds by issuing bonds — essentially IOUs — and in return pay interest to the investment funds that purchase them.
Fears that inflation will erode returns have pushed bond interest rates, known as yields, higher in recent months.
But other forces are also lifting yields, including growing competition in the bond market from major tech firms seeking to raise vast sums to invest in artificial intelligence (AI) development.
On AI, Georgieva pointed to recent concerns about losing safe control over such systems as a possible financial stability issue, alongside debt levels.
“If we see more incidents when AI takes [on a] life of its own, then we can be faced with a significant financial stability risk,” she said.
The IMF managing director repeated the influential institution’s view that the global economy is being shaped by two forces “pushing in opposite directions” — the energy price shock and investment in AI.
She said it was important for low exports of oil and gas from the Gulf “to resume in a durable manner, for the energy supply shock to finally be in the rearview mirror”.
“That is a very significant step to normalisation,” she said, while acknowledging that it had not yet happened.