The world’s advanced economies including the UK and US need to cut borrowing and reduce debt levels following weeks of spiralling government interest costs, the head of the International Monetary Fund (IMF) has warned.
In an exclusive interview, Kristalina Georgieva said global economic shocks had been “pushing debt levels up like a staircase not to heaven” but that governments had taken “no action to contain that service cost”.
“[It’s] time to take that action,” she said, adding that “courage” was needed by politicians to take the necessary steps.
The intervention comes as government borrowing costs have surged in response to wars disrupting the supply of oil, which has fuelled inflation.
Higher global borrowing costs have hit the UK government in the run-up to UK Prime Minister Andy Burnham’s first Budget next month, with speculation building over potential tax and spending policies.
The latest figures show borrowing – the difference between tax receipts and government spending – was £18.3bn ($24.4bn) in August, almost a fifth higher than the year before and higher than official forecasts. Meanwhile debt interest for the month was the highest August figure since monthly records began in 1997.
Higher borrowing costs have also hit the US, the world’s largest economy, which has seen its debt pile surpass $40tn. The amount has doubled within the space of a decade, prompting concerns at home and abroad.
On the sidelines of the United Nations General Assembly, Georgieva said the IMF’s message to advanced economies was that while there were economic factors occurring outside the control of governments, they did have command over domestic policies.
“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.
“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.”
Asked specifically about the UK’s higher interest costs compared to other major economies, Georgieva said its position was “not very different” from others.
She pointed to “fairly consistent action” on lowering debt and praised planning and housing reforms, adding that advanced economies “don’t have the cash” to boost growth and so had to rely on reforms to encourage the private sector to invest.
