IMF tells advanced economies to ‘bring debt down’ as borrowing costs rise
The world's advanced economies, including the UK and US, need to cut borrowing and reduce debt levels following weeks of spiralling government interest costs, the head of the International Monetary Fund (IMF) has warned.
The International Monetary Fund (IMF) has cautioned advanced economies, including the UK and US, to reduce their debt levels and borrowing due to escalating government interest costs, according to head Kristalina Georgieva. The IMF claims that global economic disruptions have been causing debt levels to rise like a staircase, rather than increasing gradually.
Georgieva emphasized the need for political courage to tackle these issues, noting that advanced economies are running out of cash to boost growth and must instead focus on reforms to spur private sector investment.
Recent data reveal that the UK government's borrowing, the difference between tax receipts and government spending, reached £18.3bn ($24.4bn) in August, marking a nearly 20% increase from the previous year and surpassing official predictions. Interest payments on debt for the month also hit the highest August figure since records began in 1997.
Similar trends have been observed in the US, the world's largest economy, where debt levels have now surpassed $40tn, more than doubling in just a decade, sparking both domestic and international concerns.
While external economic factors beyond government control are affecting the global economy, Georgieva highlighted that these advanced economies hold the power to enact domestic policies. She reiterated that the IMF's message to these economies is clear: reduce debt levels, prioritize fiscal consolidation, and ensure central banks maintain price stability.
Ironically, Georgieva acknowledged that the UK's interest costs are not significantly higher than other major economies, attributing this to relatively consistent actions on debt reduction and housing reforms.
Concerns over inflation eroding returns have driven bond yields higher in recent months, with governments raising funds by selling bonds and paying interest to investors. However, other factors, including the growing competition in bond markets from large tech companies raising money for artificial intelligence (AI) development, are also contributing to the rise in yields.
Georgieva raised the issue of AI's potential to pose a significant financial stability risk if it operates independently, emphasizing the need for a durable return to normal oil and gas exports from the Gulf to address energy supply shocks.
Written by urgent.news from BBC Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
