IMF's Georgieva Tells UK and US to Act on Spiralling Debt Costs

The head of the International Monetary Fund has told the world's advanced economies, including the UK and the US, to cut borrowing and reduce debt levels after weeks of spiralling government interest costs.

In an exclusive interview, IMF Managing Director Kristalina Georgieva said global economic shocks had been "pushing debt levels up like a staircase not to heaven" and accused governments of taking "no action to contain that service cost."

"[It's] time to take that action," she said, adding that politicians needed "courage" to take the necessary steps.

Her intervention comes as government borrowing costs have surged in response to wars disrupting oil supply, which has fuelled inflation.

UK Under Pressure Ahead of Budget

Higher global borrowing costs have hit the UK government in the run-up to Prime Minister Andy Burnham's first Budget next month, with speculation building over potential tax and spending policies.

The latest figures show borrowing — the difference between tax receipts and government spending — reached £18.3bn ($24.4bn) in August. That is almost a fifth higher than a year earlier and above official forecasts.

Debt interest payments were the highest figure for August since monthly records began in 1997.

The US, the world's largest economy, has also been hit by higher borrowing costs. Its debt pile has surpassed $40tn, doubling within the space of a decade and prompting concerns at home and abroad.

Speaking on the sidelines of the United Nations General Assembly, Georgieva said the IMF's message to advanced economies was that while economic shocks occur outside government control, domestic policies remain within their command.

"There are these two things that must be done: bring debt levels down, put fiscal consolidation as a priority, and make sure that the central banks deliver on their mandate for price stability," she said.

"It is impossible to stress strongly enough how critical it is to get the courage to take the steps that are necessary. These are politically tough steps to take, but necessary steps to take."

UK Position "Not Very Different"

Asked specifically about the UK's higher interest costs compared with other major economies, Georgieva said its position was "not very different" from others.

She pointed to "fairly consistent action" on lowering debt and praised planning and housing reforms. Advanced economies "don't have the cash" to boost growth, she said, and must therefore rely on reforms to encourage the private sector to invest.

Governments raise money by selling bonds — essentially an IOU — and pay interest to the investment funds that buy them. Concerns over inflation eroding returns have pushed bond yields higher in recent months.

Competition in the bond market adds further pressure. Large tech companies are raising huge amounts of money to invest in artificial intelligence development, crowding the market.

AI Could Pose "Financial Stability Risk"

On AI, Georgieva referenced recent concerns about loss of safe control over such systems as a potential financial stability problem, alongside debt levels.

"If we see more incidents when AI takes [on a] life of its own, then we can be faced with a significant financial stability risk," she said.

The IMF chief repeated the body's assessment that the global economy is affected by two forces "pushing in opposite directions" — the energy price shock and investment in AI.

She said it was important for oil and gas exports from the Gulf, currently low, "to resume in a durable manner, for the energy supply shock to finally be in the rearview mirror."

"That is a very significant step to normalisation," she said, while acknowledging it has yet to happen.

For now, the burden sits with governments. Georgieva's warning leaves Burnham and his US counterparts facing a choice between politically painful fiscal consolidation and mounting debt service costs that already rank as the highest on record for this time of year.