IMF Opens Bangkok Meetings With Rich-World Debt in Focus as Governments Pay Over $3.3 Trillion a Year in Interest

Since the U.S. war on Iran pushed oil to around $100 a barrel and sent inflation and bond yields higher, the IMF's worry list has flipped. As the IMF and World Bank annual meetings open in Bangkok today, Oct. 12, the problem child is not a poor country. It is the rich world.

IMF Managing Director Kristalina Georgieva calls advanced economies the "worst offenders" on debt. Governments in America, Europe and Japan have seen borrowing costs climb to multi-decade highs, according to Bloomberg's reporting ahead of the meetings. The average yield on 10-year government debt across the G7 hit 4.3% last month.

The interest bill

The Institute of International Finance reports that rich-world governments pay more than $3.3 trillion a year in interest. That is more than global spending on defense or on AI. The IIF also drew a parallel with the "debt-distressed" emerging markets of the past.

The bills trace to the cheap-money years after the 2008 financial crisis, when governments borrowed trillions at low rates. Now they must refinance at much higher ones. Higher interest costs push governments to borrow more, which is the vicious circle the IMF is worried about.

Bank of America Securities calls it a "time-inconsistent fiscal policy" problem. The bank notes that the U.S. and France both carry debt-to-GDP ratios around 120%. America's revenue decline is cyclical, it says, while France's is more structural.

What Georgieva is saying

In an interview with the BBC on the sidelines of the UN General Assembly, Georgieva said global shocks had been "pushing debt levels up like a staircase not to heaven." Governments, she said, have taken "no action to contain that service cost."

Her prescription is two-part: bring debt down by making fiscal consolidation a priority, and make sure central banks deliver price stability. "It is impossible to stress strongly enough how critical it is to get the courage to take the steps that are necessary," she said. "These are politically tough steps to take, but necessary steps to take."

Her tone has hardened. Earlier in the Iran war she stressed the world's resilience. Last month she said: "In normal times, that would not be a giant problem. But these are not normal times, because we have debt levels in advanced economies at historic highs."

She also warned that governments stuck with big interest bills will struggle to help citizens with the cost of living. "We should prepare for people being more unhappy," she said. "Maybe on the street."

Why it won't stay in the rich world

When yields rise on U.S. Treasuries, financing costs usually rise for companies, consumers and governments everywhere. The Federal Reserve and the Bank of Japan have been raising interest rates in the face of $100 oil, according to Bloomberg. That puts pressure on emerging-market central banks to follow or risk capital flight.

Emerging markets are holding up better for now. BigGo Finance's account of the IMF warning says buffers built after the Asian financial crisis have helped them. It adds that spillovers from developed-world debt problems are already showing up.

The meetings are in Thailand, where the Asian financial crisis began nearly three decades ago.

Numbers in the U.S. and UK

U.S. national debt has passed $40 trillion, the BBC reports. That is double what it was a decade ago.

In the UK, borrowing hit £18.3bn ($24.4bn) in August, almost a fifth higher than a year earlier and above official forecasts. Debt interest for the month was the highest for any August since monthly records began in 1997.

That lands just before UK Prime Minister Andy Burnham's first Budget next month. Asked why UK interest costs look higher than other major economies', Georgieva said Britain's position was "not very different" from others. She cited "fairly consistent action" on lowering debt and praised planning and housing reforms.

She added that advanced economies "don't have the cash" to boost growth, so they must rely on reforms that encourage private investment.

What comes next

Georgieva has said debt, energy and an AI boom that is lifting some economies while bypassing most are the top items on this week's agenda. The IMF's updated growth forecasts are due during the meetings. Burnham's Budget follows next month, and the first test is whether any finance minister in Bangkok commits to a specific debt-reduction plan.