IMF chief urges wealthy nations to slash debt as borrowing costs climb

Kristalina Georgieva, managing director of the International Monetary Fund, delivered a stark message to the world's richest economies during the UN General Assembly in New York City: reduce debt levels and cut borrowing immediately. Speaking in an exclusive interview, she warned that spiralling government interest costs demanded urgent political action, even as advanced economies face mounting fiscal pressure.

The intervention arrives as borrowing costs have surged globally, driven by geopolitical tensions disrupting energy supplies and fuelling inflation. The UK government faces particular pressure ahead of Prime Minister Andy Burnham's first Budget next month, with speculation mounting over tax and spending decisions. In August alone, UK borrowing reached £18.3bn ($24.4bn)—nearly a fifth higher than the previous year and above official forecasts—while debt interest payments hit their highest August level since monthly records began in 1997.

The United States, the world's largest economy, confronts an even starker challenge. American government debt has surpassed $40tn, having doubled within a decade. According to recent IMF projections, global public debt will exceed 100% of global GDP in 2029, two years sooner than previously forecast, with rising debt in the US and China driving much of the acceleration.

What must governments do to address the crisis?

Georgieva outlined two essential steps for advanced economies.

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. She emphasised that while external economic shocks—wars, energy disruptions, inflation—lay beyond government control, domestic policy remained firmly within their grasp.

[It's] time to take that action,

she declared, stressing that

courage

was essential for politicians willing to make difficult choices.

The IMF chief characterised the debt trajectory as alarming.

Global economic shocks had been pushing debt levels up like a staircase not to heaven,

she observed, yet governments had taken

no action to contain that service cost.

According to IMF materials released on 7 September, the global public-debt burden has reached its heaviest level since World War II, underscoring the scale of the challenge.

When asked about the UK's comparatively higher interest costs, Georgieva said the nation's position was

not very different

from other major economies. She acknowledged

fairly consistent action

on lowering debt and praised planning and housing reforms. However, she cautioned that advanced economies

don't have the cash

to boost growth through spending alone and must instead rely on structural reforms to encourage private-sector investment.

How do rising bond yields affect developing nations?

The consequences of advanced economies' debt crisis extend far beyond wealthy nations. According to Georgieva's remarks on 2 September, ballooning debt and rising bond yields in advanced economies could raise debt-service costs for emerging markets and low-income countries, threatening their own development progress. High debt in wealthy nations, combined with stubborn inflation, risks lifting borrowing costs worldwide, creating a cascading effect through the global financial system.

Governments worldwide raise money by issuing bonds—essentially IOUs—and pay interest to investment funds that purchase them. Concerns over inflation eroding returns have driven bond yields sharply higher in recent months. The UK's long-term borrowing costs reached a 28-year high on 1 September, illustrating the bond-market stress that framed the IMF's subsequent warnings.

What role does artificial intelligence play in financial stability?

Beyond debt, Georgieva identified an emerging risk to financial stability: artificial intelligence. Large technology companies are competing aggressively in bond markets to raise enormous sums for AI development, adding upward pressure on yields. More troublingly, she flagged the potential for AI systems to operate beyond human control.

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 warned.

The IMF chief framed the global economy as caught between two opposing forces. Energy price shocks—particularly reduced oil and gas exports from the Gulf—push inflation upward, while massive investment in AI development pulls in the opposite direction.

It is important for the low exports of oil and gas from the Gulf to resume in a durable manner, for the energy supply shock to finally be in the rearview mirror,

she said.

That is a very significant step to normalisation,

though she acknowledged this normalisation has yet to materialise.

What is the scale of the global debt problem?

The debt crisis has reached historic proportions. According to IMF communications director Julie Kozack, public debt now stands at nearly 100% of global GDP and represents the highest level since World War II. The IMF has intensified its calls for governments to narrow budget deficits and accelerate fiscal consolidation as global debt reaches record highs.

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,

Georgieva emphasised.

What happens next?

The IMF is pushing for faster deficit reduction and fiscal action ahead of its next policy meetings and ongoing global debt discussions. The organisation's next major public debt assessment is expected as part of its forthcoming policy cycle later in 2026, following the September warnings from Georgieva and other senior officials. Governments face mounting pressure to demonstrate concrete progress on debt reduction before these assessments take place.

Key Facts:

• Global public debt is projected to exceed 100% of global GDP in 2029, two years earlier than previously expected
• UK borrowing in August reached £18.3bn, nearly 20% higher than the previous year, with debt interest payments at their highest August level since 1997
• US government debt has surpassed $40tn, having doubled within a decade
• Global public debt is now at its highest level since World War II, standing at nearly 100% of global GDP
• The IMF warns that high debt and rising yields in advanced economies threaten borrowing costs for developing countries and emerging markets