BANGKOK– The United States and other wealthy countries must urgently address rising levels of global debt, which are burdening low-income countries the most and straining the global financial system, the head of the International Monetary Fund said Wednesday.
IMF Managing Director Kristalina Georgieva said Treasury Secretary Scott Bessent and other U.S. leaders recognized that the federal deficit and national debt were too high. But economic growth alone won’t be enough to reduce the country’s national debt, which tops $40 trillion, she said.
At the same time, rising bond yields, reflecting higher premiums demanded by investors to take on more risk, have disrupted financial markets.
“We think that growth, of course, helps, but it cannot make the necessary adjustments quickly enough,” Georgieva said at the fall meeting of the IMF and World Bank in Bangkok.
“There is no magic,” she said, adding that other measures would be necessary. “We have to move in the direction of tightening, reducing, reducing the deficit.”
Rising debt levels and global inflation, resulting in part from high energy costs due to the war in Iran, have pushed interest rates to multi-decade highs, adding to the burden on the world’s poorest nations.
Efforts to bring debt under control through what Georgieva and other experts call “fiscal consolidation” have suffered setbacks due to massive spending during the COVID-19 pandemic and since.
“Fiscal risks are increasing and an appropriate response is largely absent in many countries,” said Rodrigo Valdes, director of the IMF’s fiscal affairs department. “And in major advanced economies, the effect of fiscal indiscipline doesn’t stop at borders. It extends to the rest of the world.”
“Among the world’s poorest countries, interest payments have reached historic highs relative to income, and shrinking aid amounts are creating deficits that some countries have been unable to finance,” said the IMF’s latest Fiscal Monitor.
This forces countries to make difficult choices between supporting their most vulnerable populations and meeting their debt repayment obligations.
“Countries in the South are paying the price for rising interest rates in the richest countries,” British Foreign Secretary Ed Miliband said at a side event at the IMF meetings.
“We need a new debt deal, one that helps countries repay over longer horizons and, above all, refinancing at better rates to give developing countries valuable fiscal space,” he said.
The median developing country pays three times as much interest as developed countries, said Alexander De Croo, former Belgian prime minister and administrator of the United Nations Development Program (UNDP).
On average, nearly 10% of public spending is devoted to debt repayment. High fuel and fertilizer prices, the effects of the El Niño weather phenomenon, and rising borrowing costs have left many low-income countries with little room for recovery.
“I mean, we don’t really see any light at the end of the tunnel,” De Croo told the Associated Press.
Job creation is another top priority, especially as the growing use of artificial intelligence threatens to make many traditional professions obsolete. More than 1.2 billion young people are expected to enter the global job market over the next decade, while forecasts suggest only 400 million net new jobs will be created.
UNDP this week announced its Jobs for Prosperity initiative aimed at bringing together governments, development banks – such as the World Bank – and private companies to encourage investment in sectors such as tourism, health and food processing.
The initiative and related efforts will help countries attract investments by strengthening governance and policies and developing pipelines of “investable projects,” De Croo said. “These are achievable things. It has been proven that it can be done in many places around the world,” he added.
Separately, the IMF, the Bank of Thailand and the World Bank Group on Wednesday announced a “Bangkok Plan” to combat cybercrime, financial fraud and online scams.
The announcement comes a day after cyberattacks caused refrigeration systems in hundreds of stores in France to overheat.
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Associated Press journalists Haruka Nuga and Tian Macleod Ji contributed to this report.
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