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 advanced economies could undermine progress in developing and low-income countries in their efforts to manage their own debt, according to Reuters. Georgieva stated that bond yields are being driven up by higher debt levels, ongoing inflation from the reopening of the Strait of Hormuz, and competition for capital from AI-related debt issuance.

She emphasized that this issue is not confined to low-income developing countries, as high debt levels in advanced economies, coupled with persistent inflation, could lead to increased debt service costs for all nations, including low-income and emerging market economies. Although the IMF estimated that 60% of low-income countries faced debt distress or high risk of distress in 2022, this situation has improved due to strong fiscal policy reforms backed by international institutions and official creditors.

Georgieva expressed concern that a rise in global bond yields could erase the gains made by emerging market economies, which have worked hard to gain market credibility and reduce debt costs. Despite this, she expressed optimism that debt markets were functioning orderly and optimism that G20 finance ministers and central bank governors were in agreement on improving the G20 Common Framework for debt restructuring and accelerating relief for countries in debt distress.

The IMF recently agreed to provide Senegal with a US$2.2 billion three-year loan package, conditional on Senegal seeking Common Framework debt treatment. Georgieva highlighted the importance of a streamlined debt restructuring process for Senegal's case, stating that if it succeeds, it will encourage other countries to seek similar debt treatments.