Debt burden highest since the second world war

Georgieva said global debt-to-GDP ratios have reached their highest level since the second world war and are on course to hit 100% in the coming years. Growth will not ride to the rescue: governments cannot rely on rapid economic expansion to lift the debt burden and must instead make what she called very tough political choices. Her message to economic policymakers was pointed: the tools for necessary policy action are in their hands, and the delay in using them must end.

Borrowing costs at multi-decade highs

The backdrop to the appeal is a bond market repricing. Bond yields, effectively the interest rate on government debt, have jumped in recent weeks, pushing government borrowing costs to multi-decade highs as markets adjust to the prospect of higher inflation caused by the war in the Middle East.

Georgieva said elevated yields are swelling interest bills while budgets are tight and spending priorities such as defence compete for funds, and she called for an urgent and comprehensive set of policy responses. In the high-debt advanced economies, she said, decisive action is lacking: what the moment demands are credible medium-term fiscal consolidation plans, in some cases backed by upfront fiscal measures.

The United Kingdom offered a named example of fiscal discipline:

• •UK chancellor John Healey has said he will stick with his predecessor Rachel Reeves's plans to balance day-to-day spending with tax revenues.
• •Healey has also committed to borrowing only to invest and to bringing the debt-to-GDP ratio down over time.

Central banks urged to err on the side of caution

On monetary policy, the Bulgarian economist suggested central banks should be prepared to raise interest rates to counter resurgent inflation. Now may be a good time, she argued, for a prudently hawkish bias in many countries' monetary policy - a case for policymakers to err on the side of caution.

• •The European Central Bank, the US Federal Reserve and the Bank of Japan have already tightened policy in the face of rising inflation - moves Georgieva described as highly appropriate.
• •The Bank of England has so far left interest rates on hold at 3.75%.

AI promise and perils on the same agenda

Artificial intelligence also featured. Georgieva highlighted IMF research predicting that AI adoption could add half a percentage point to global economic growth if carried out effectively. Yet she stressed the importance of tackling AI risks, noting the technology has buoyed the US stock market while raising fears of mass layoffs.

• •She urged policymakers to help manage AI's substantial perils, listing large-scale labour market fallout, serious cyber and stability risks, and frontier models threatening to escape human control.
• •Bank of England governor Andrew Bailey, who also chairs the Financial Stability Forum that brings together the world's central banks, recently warned that frontier AI models pose real and significant risks and called for the right to intervene.

Georgieva's warning lands a week before the IMF and World Bank annual meetings, which are due to be held in Bangkok.