IMF Tells Advanced Economies to Reduce Debt 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 rising government interest costs, according to Kristalina Georgieva, managing director of the International Monetary Fund (IMF).
In an exclusive interview, she expressed concern over global economic shocks driving up debt levels without any corresponding action from governments to manage the resulting service costs. She called for "courage" from politicians to take necessary steps.
The intervention comes amidst surging government borrowing costs due to wars disrupting oil supplies, which have fueled inflation. Higher borrowing costs have significantly impacted the UK ahead of Prime Minister Rishi Sunak's first Budget next month, with speculations about potential tax and spending policies.
Recent figures reveal that UK borrowing in August was £18.3bn ($24.4bn), nearly a fifth higher than the previous year, exceeding official forecasts. Simultaneously, debt interest for the month reached its highest August figure since records began in 1997. The US, the world's largest economy, has also seen its debt pile surpass $40tn, doubling within a decade, raising concerns both domestically and internationally.
On the sidelines of the United Nations General Assembly, Georgieva emphasized that while some economic factors are beyond governments' control, they do have command over domestic policies. She urged advanced economies to:
- Bring down debt levels
- Prioritize fiscal consolidation
- Ensure central banks fulfill their mandate for price stability
She further noted that the UK's higher interest costs are not significantly different from other major economies and praised the country's efforts to lower debt and housing reforms, highlighting that advanced economies lack cash to stimulate growth and thus rely on encouraging private sector investment through reforms.
Georgieva also touched upon concerns regarding artificial intelligence (AI), stating that it could pose a "financial stability risk."