IMF’s Georgieva says rising bond yields threaten progress on developing country debt

International Monetary Fund Managing Director Kristalina Georgieva warned on Tuesday that rising bond yields in developed nations could jeopardize the progress low-income countries have made in managing their own debts. Georgieva highlighted bond yields being driven up by increased overall debt levels, ongoing inflation pressures from the Strait of Hormuz, and competition for capital from AI-related debt issuance.

She emphasized that the issue is not limited to low-income developing countries, as high debt levels in advanced economies and persistent inflation could result in higher debt service costs for all, including low-income, emerging market and developing economies.

In 2022, the IMF estimated that 60% of low-income countries were in debt distress or at high risk of distress. However, Georgieva noted that this situation has improved due to strong fiscal policy reforms backed by international institutions and official creditors. Georgieva stressed that gains in market credibility and reduced spreads for some emerging market economies could be undone by rising debt service costs and global yield increases in developed economies.

Despite her concerns, Georgieva remained optimistic about the orderly functioning of debt markets and expressed hope that G20 finance ministers and central bank governors would agree on enhancing the G20 Common Framework for debt restructuring and accelerating relief for countries facing debt distress. The IMF announced a staff-level agreement with Senegal for a $2.2 billion three-year loan package, contingent on Senegal's pursuit of Common Framework debt treatment.

The Common Framework, launched during the COVID-19 pandemic in November 2020, aims to coordinate official and private creditors in restructuring crisis-hit countries' debt. However, achieving debt workouts for the first two debtor countries, Chad and Zambia, took years due to disagreements on sharing losses among various creditors.

Georgieva expressed confidence that the new process, agreed to in May, would streamline debt restructurings and encourage more countries to seek similar debt treatments. If the new process works well and swiftly for Senegal, Georgieva pledged that the Fund would relentlessly pursue speedy completion.