The head of the International Monetary Fund has called on governments across big economies to tighten their belts as soaring bond yields hit budgets.<\/p>\n
Speaking in Singapore, the IMF\u2019s managing director, Kristalina Georgieva<\/a>, said global debt-to-GDP ratios were at their highest level since the second world war and on course to hit 100% in the coming years.<\/p>\n She said governments could not rely on rapid economic growth to lift the burden of debt \u2013 and instead would have to make \u201cvery tough political choices\u201d.<\/p>\n Georgieva was speaking before the IMF and World Bank<\/a> annual meetings, which are to be held in Bangkok next week. \u201cMy message to the world\u2019s economic policymakers will be this: we cannot keep delaying necessary policy action \u2013 you have the tools, now have the wisdom to use them.<\/p>\n \u201cAnd yet we don\u2019t see decisive action in the high-debt advanced economies where the need of the hour is for credible medium-term fiscal consolidation plans, supported in some cases by upfront fiscal measures,\u201d she said.<\/p>\n Bond yields \u2013 effectively the interest rate on the debt \u2013 have jumped in recent weeks<\/a>, raising the cost of borrowing for many governments to multi-decade highs as markets adjust to the prospect of higher inflation as a result of the war in the Middle East.<\/p>\n \u201cElevated yields are inflating the interest bill at a time of tight budget constraints and competing spending priorities, including defence,\u201d Georgieva said, calling for \u201can urgent and comprehensive set of policy responses\u201d.<\/p>\n The Bulgarian economist suggested central banks should be prepared to raise interest rates to see off resurgent inflation.<\/p>\n The ECB, US Federal Reserve and Bank of Japan have already tightened policy in the face of rising inflation \u2013 moves Georgieva said were \u201chighly appropriate\u201d \u2013 but the Bank of England has so far left rates on hold at 3.75%.<\/p>\n \u201cNow may be a good time for a prudently hawkish bias in many countries\u2019 monetary policy,\u201d Georgieva said, suggesting central banks might want to err on the side of caution.<\/p>\n She also stressed the importance of tackling some of the risks of AI, which has buoyed the US stock market but raised fears of mass layoffs.<\/p>\n She highlighted IMF research predicting that the adoption of AI could add half a percentage point to global economic growth if carried out effectively. However, she urged policymakers to \u201chelp manage AI\u2019s substantial perils, including large-scale labour market fallout, serious cyber and stability risks and frontier models threatening to escape human control and run amok\u201d.<\/p>\n The Bank of England governor, Andrew Bailey, who is also chair of the Financial Stability Forum that brings together the world\u2019s central banks, recently warned of the \u201creal and significant\u201d risks<\/a> posed by frontier AI models and called for the \u201cright to intervene\u201d.<\/p>\n