IMF tells advanced economies to cut borrowing as interest costs spiral
IMF chief Kristalina Georgieva urges advanced economies, including the UK, to reduce debt and prioritise fiscal consolidation as government interest costs and bond yields rise.
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IMF chief calls for action on debt
The head of the International Monetary Fund, Kristalina Georgieva, has warned advanced economies that they must cut borrowing and bring down debt. In an exclusive interview with the BBC's economics editor, Faisal Islam, at the UN General Assembly, she said governments cannot control external factors but can control domestic policy. She urged them to stay ahead of inflation and get on top of their debt issue.
Georgieva said repeated shocks had pushed debt levels up like a staircase not to heaven, with no action to contain debt service costs. She said it was time to act. Her advice was to bring debt levels down, make fiscal consolidation a priority, and ensure central banks deliver on price stability. She added that bond markets have reacted to fundamentals: inflation is up, debt service is up, and debt is reflected in yields. If yields are not to rise step after step, there must be a clear effort at fiscal consolidation and a clear commitment to price stability.
The warning follows a shock in government bond markets over the summer. It has affected the biggest nations, including the United States and the United Kingdom. When a government spends more than it raises in taxes over time, especially during high inflation, the interest rate the market demands for its debt tends to rise. Debt levels have climbed because of COVID, energy crises and a rolling series of crises. As interest rates rise, a larger share of tax revenue goes on debt service.
This affects ordinary people in two ways. The government has less to spend on public priorities, so it may cut spending or raise taxes. Higher government borrowing costs also feed into the rates paid by businesses and households, including mortgages. That leaves less money for investment and spending.
The pressure is particularly stark in advanced economies. In the United States, the wider measure of debt has reached $40 trillion. The IMF's warning also comes amid a debate about whether the inflation and borrowing pressure linked to the Iran conflict will last only a few weeks, as Donald Trump predicted at the UN, ending in November after the US midterms, or whether it will take years.
For the UK, the choice is immediate. Ahead of the Budget next month, the Treasury must decide whether to raise taxes, curb spending or let borrowing rise. The IMF is not the only body giving this advice. The OECD has issued similar warnings and said UK growth will be better this year but downgraded next year.
On screen
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Key Claims
Claims reported during this story's coverage, mapped by channel. Ordered by how many channels carried each claim.
| Claim | BBC News | BBC One |
|---|---|---|
| The IMF head warned that governments must tackle debt and inflation, citing repeated shocks and rising debt servicing costs. | ||
| A government bond market shock over the summer hit the US and UK. | · | |
| An economics editor noted that higher government borrowing costs can raise costs for households and businesses. | · | |
| The OECD issued similar warnings and said UK growth would be better this year but downgraded next year. | · | |
| The UK faces choices between tax rises, spending curbs, or higher borrowing ahead of next month's Budget. | · | |
| The US wider measure of debt reached $40 trillion. | · |
Channel Perspectives
What each channel focused on, with key quotes.
BBC News Now led on the IMF chief's exclusive interview and gave a detailed explainer on why government borrowing matters. It stressed the summer bond market shock, the effect on the US and UK, and the link between government rates, household mortgages and business investment. It also framed the issue as a near-term judgment for finance ministers over whether the Iran conflict and inflation pressure will fade quickly or last for years.
- “Our message to everybody is you cannot control exogenous factors, but you have control over your domestic policies. So make sure you stay ahead of inflation, keep inflation back, and to governments, get on top of your debt issue.”
- “I have seen shock after shock pushing debt levels up like a staircase not to heaven and no action to contain the debt service costs.”
- “There's been a government bond market, borrowing market shock, frankly, over the summer affecting the biggest nations in the world from the United States and the United Kingdom too.”
BBC ONE West put the UK at the centre of the IMF warning and tied it to next month's Budget. It set out the familiar trade-off between tax rises, spending cuts and higher borrowing, and noted that the OECD has issued similar advice. Its coverage was shorter on bond market mechanics and more focused on political timing, including the UN General Assembly and US midterm pressure.
- “The world's advanced economies, including the UK, must cut borrowing and reduce debts.”
- “There are choices between raising taxes, curbing spending or letting borrowing go up. And of course, ahead of the budget next month, the UK will face that choice pretty quickly.”
- “The IMF not the only organisation making this sort of advice, the OECD also making similar warnings and saying that although the UK growth will be better this year, it will be downgraded for next year.”
Who was on air
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- 12:19 BST
Kristalina Georgieva, head of the International Monetary Fund
“Our message to everybody is”
BBC News Now · Wed 23 Sept
- 13:08 BST
“Our message to everybody is you cannot control exogenous factors, but you have control over your domestic policies.”
BBC News at One including... · Wed 23 Sept
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