IMF Warns Rising Borrowing Costs Deepen Global Debt Pressures
(MENAFN) The International Monetary Fund has warned that increasing government borrowing costs are placing additional strain on public finances worldwide, calling for credible policies to control budget deficits as global public debt is projected to exceed 100% of global economic output by 2030.
In a blog post published Wednesday, the fund reported that average 10-year government bond yields across the Group of Seven advanced economies increased by more than one percentage point between February and September, reaching their highest levels in almost 20 years.
The IMF identified several factors behind the increase, including an oil price shock, continued inflation, stronger demand for investment and expectations of economic growth associated with artificial intelligence.
Elevated debt levels, mounting public expenditure requirements and anticipated increases in government bond issuance are also contributing to higher yields. Rising financing costs in major economies could, in turn, create additional debt-related challenges for other countries.
The average effective interest rate on government financing is expected to climb from 2.3% in 2021 to 3.7% by 2031, further increasing the cost of servicing public debt.
In the United States, interest payments are projected to rise from approximately 2.8% of gross domestic product before the pandemic to 5.7% by 2031, a level broadly comparable to anticipated spending on Social Security.
The pressure is particularly significant in low-income countries, where interest payments already account for more than 15% of government tax revenues.
According to the IMF, growing debt-servicing obligations are reducing the resources available for infrastructure investment and social programs while weakening governments' capacity to respond effectively to economic downturns.
In a blog post published Wednesday, the fund reported that average 10-year government bond yields across the Group of Seven advanced economies increased by more than one percentage point between February and September, reaching their highest levels in almost 20 years.
The IMF identified several factors behind the increase, including an oil price shock, continued inflation, stronger demand for investment and expectations of economic growth associated with artificial intelligence.
Elevated debt levels, mounting public expenditure requirements and anticipated increases in government bond issuance are also contributing to higher yields. Rising financing costs in major economies could, in turn, create additional debt-related challenges for other countries.
The average effective interest rate on government financing is expected to climb from 2.3% in 2021 to 3.7% by 2031, further increasing the cost of servicing public debt.
In the United States, interest payments are projected to rise from approximately 2.8% of gross domestic product before the pandemic to 5.7% by 2031, a level broadly comparable to anticipated spending on Social Security.
The pressure is particularly significant in low-income countries, where interest payments already account for more than 15% of government tax revenues.
According to the IMF, growing debt-servicing obligations are reducing the resources available for infrastructure investment and social programs while weakening governments' capacity to respond effectively to economic downturns.
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