Kristalina Georgieva, managing director of the International Monetary Fund (IMF), issued a warning regarding debt levels at the United Nations General Assembly meeting in New York City. She stated that advanced economies, including the UK and the US, need to cut borrowing and reduce debt levels in light of increasing government interest costs. Georgieva noted that global economic shocks have contributed to rising debt levels, but governments have not taken sufficient action to manage these costs. "It's time to take that action," she emphasized, calling for political courage to implement necessary measures.
The warning comes as government borrowing costs have surged due to disruptions in oil supply caused by conflicts, which have contributed to inflation. In the UK, borrowing reached £18.3 billion ($24.4 billion) in August, nearly 20% higher than the previous year and exceeding official forecasts. Additionally, debt interest for August was the highest recorded since 1997. The US, with a debt exceeding $40 trillion, has also faced rising borrowing costs, raising concerns domestically and internationally.
Georgieva stated that while external economic factors exist, governments have control over domestic policies. She outlined two priorities for advanced economies: reducing debt levels and ensuring fiscal consolidation, while also urging central banks to focus on price stability. She remarked on the political challenges of implementing these necessary steps.
Regarding the UK's interest costs compared to other economies, Georgieva indicated that its situation is similar to others, highlighting consistent efforts to lower debt and praising reforms in planning and housing. She noted that advanced economies lack the financial resources to stimulate growth and must rely on reforms to attract private sector investment.
Governments typically raise funds by selling bonds, which involve paying interest to investors. Recent inflation concerns have led to higher bond yields. Additionally, competition from large tech companies seeking to finance AI development has contributed to rising yields. Georgieva expressed concerns about the potential financial stability risks associated with AI, stating that incidents where AI operates independently could pose significant risks.
The IMF's managing director reiterated that the global economy is influenced by two opposing forces: the energy price shock and investment in AI. She stressed the importance of stabilizing oil and gas exports from the Gulf to mitigate the energy supply shock, acknowledging that this has not yet occurred.