Kristalina Georgieva, managing director of the International Monetary Fund (IMF), warned about increasing debt levels during the UN General Assembly meeting in New York City. She stated that advanced economies, including the UK and US, need to reduce borrowing and debt levels due to rising government interest costs. Georgieva noted that global economic shocks have been contributing to escalating debt levels, and she emphasized the need for governments to take action to manage these costs. "[It's] time to take that action," she said, highlighting the necessity for political courage to implement required measures.
The warning comes as government borrowing costs have surged, influenced by geopolitical events affecting oil supply, which in turn has driven inflation. In August, UK borrowing reached £18.3 billion ($24.4 billion), a 20% increase from the previous year, with debt interest at its highest for August since records began in 1997. The US, facing its own challenges, has seen its debt exceed $40 trillion, doubling over the past decade.
Georgieva stated that while external economic factors exist, governments have control over domestic policies. She outlined two necessary actions: reducing debt levels and prioritizing fiscal consolidation, while ensuring central banks maintain price stability. Regarding the UK's interest costs, she noted that its situation is similar to that of other major economies and acknowledged the need for reforms to stimulate private sector investment.
Governments typically finance operations by issuing bonds, which require interest payments to investors. Rising inflation has led to increased bond yields, compounded by competition from large tech companies seeking funds for artificial intelligence investments. Georgieva also raised concerns about potential financial stability risks associated with AI, stating that incidents where AI systems operate uncontrollably could pose significant risks.
The IMF chief reiterated that the global economy is influenced by two opposing forces: energy price shocks and AI investment. She stressed the importance of stabilizing oil and gas exports from the Gulf to facilitate economic normalization, acknowledging that this has not yet occurred.