'Winter is coming': IMF chief sounds alarm over global economy as UK borrowing costs hit new 28-year high in bond market rout

Singapore’s president Tharman Shanmugaratnam and IMF Chief Kristalina Georgieva cautioned on Wednesday about structural risks stemming from countries’ global public debt. The International Monetary Fund (IMF) managing director highlighted that global public debt has reached near-record levels, with projections to surpass 100% of gross domestic product (GDP). Georgieva pointed out that interest rates remain high, making it increasingly challenging for governments to manage debt.

Tharman, who previously served on the IMF’s International Monetary and Financial Committee, noted that addressing fiscal deficits has become more structural than cyclical. He explained that many governments, particularly the largest and most systemically important economies, are now reliant on debt to cushion shocks. These nations, facing polarized electorates, are unlikely to implement unpopular fiscal measures until they have no choice.

Both leaders warned that elevated borrowing costs could constrain central banks’ ability to respond to future crises or economic shocks, such as those potentially induced by artificial intelligence (AI)-driven growth. Georgieva cautioned against central banks “running to the rescue” of fiscal agents, emphasizing that they should focus on maintaining price stability.

Tharman also cautioned against overestimating AI’s potential to alleviate debt pressures, stating that the growth might not translate into increased government revenue. He highlighted that AI’s growth could result in a structural shift, leaning more towards capital than labor, which could slow revenue growth for governments reliant on employment taxes.