Bangkok:IMF Managing Director Kristalina Georgieva has called on governments to urgently bolster public finances, warning that the global economy's ability to withstand repeated shocks is nearing its limits. This statement was made during a press briefing at the IMF-World Bank annual meetings.
According to Anadolu Agency, Georgieva highlighted that energy and fiscal reserves are being drained, with persistent inflation and rising interest rates compounding debt-servicing challenges. She noted that global growth is projected to reach about 3.1% in 2026, consistent with April’s forecast but lower than last year’s 3.4%. This outlook is shaped by contrasting dynamics, including disruptions in energy supplies due to Middle East conflicts and economic activity spurred by artificial intelligence.
Economies involved in AI supply chains, such as Thailand, Malaysia, South Korea, and Singapore, are generally performing better, alongside energy exporters unaffected by conflicts. Conversely, low-income countries and fragile states, particularly those importing energy and not benefiting from the tech boom, are under significant strain.
Georgieva also pointed out that government bond yields in advanced economies have soared to multidecade highs due to inflationary pressures, investment demand, and fiscal vulnerabilities. This rise in benchmark yields is elevating borrowing costs for emerging markets, even when their risk premiums remain stable. The cost of servicing debt for low-income countries has climbed from 6% of government revenues a decade ago to 14%.
She urged governments to enhance revenue, streamline spending, and improve public financial management. While assistance for rising food and energy costs should be temporary and targeted, central banks must focus on maintaining price stability, particularly where inflation exceeds targets and economic activity is robust.
On addressing global imbalances, Georgieva called for increased domestic consumption in China, higher savings and deficit reduction in the US, and stronger investment in Europe. She stressed that US economic growth alone would not suffice for the necessary fiscal adjustments, calling for additional measures.
Finally, Georgieva cautioned that lower-than-expected returns from AI in the near term could lead to a market correction, and AI-enabled cyberattacks could threaten financial stability.