International Monetary Fund Managing Director Kristalina Georgieva said Wednesday that the United States and other wealthy nations must urgently address mounting global debt, which she argued is weighing heaviest on low-income countries and straining the international financial system.
Debt relief requires more than growth
Georgieva said that simply growing the U.S. economy out of its more than $40 trillion in national debt would not be enough. She noted that the fund believes growth helps, but it cannot deliver the necessary adjustments fast enough. She emphasized that “there is no magic” and that a direction of fiscal tightening is required to bring deficits down.
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Rising debt levels and global inflation, partly driven by high energy costs related to the Iran war, have pushed interest rates to multidecade highs. These factors add to the burdens of the world’s poorest nations. Efforts to bring debt under control have suffered setbacks from heavy spending during the COVID-19 pandemic and since.
IMF Fiscal Affairs Department Director Rodrigo Valdes noted that fiscal risks are rising in many countries. He observed that “in major advanced economies, the effect of fiscal indiscipline does not stop at the border. It travels to the rest of the world.” The fund’s latest Fiscal Monitor reports that among the world’s poorest countries, interest payments have reached historic highs relative to revenue. Declining aid amounts are creating financing gaps that some nations cannot cover.
Georgieva and other experts describe this effort as “fiscal consolidation,” though it faces challenges. Nations are being forced to make hard choices between supporting their most vulnerable populations and meeting their debt repayment obligations. In an interview with The Associated Press, Alexander De Croo, former Belgian prime minister and administrator of the United Nations Development Programme, highlighted the disparity in repayment burdens. He noted that the median developing country is actually paying three times more on interest repayments than developed countries.
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Focus on job creation and investment
De Croo said that on average nearly 10% of government spending is going toward repaying debt. The combination of high prices for fuel, fertilizer, and other needs, the impact of the El Nino weather phenomenon, and higher borrowing costs has left many low-income countries with little opportunity to recover. He stated that “we don’t see really a light at the end of the tunnel.”
Generating jobs is another top priority. More than 1.2 billion young people are expected to enter the global workforce in the next decade or so. Forecasts suggest a net creation of only 400 million new jobs. The UNDP announced this week a “Jobs for Prosperity” initiative that will work with governments, development banks, and private businesses to encourage investment in key job-creating areas such as tourism, healthcare, and food processing.
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