Rising bond yields in advanced economies risk reversing hard-won progress by developing countries to stabilise their finances, International Monetary Fund managing director Kristalina Georgieva has warned.
Speaking on the sidelines of the G20 finance ministers’ meeting in Asheville, North Carolina, Georgieva said higher borrowing costs in richer nations were spreading across global markets and increasing debt-service pressures for emerging and low-income economies.
“High debt levels in advanced economies, combined with stubborn inflation, could lead to debt service costs going up for everybody, including for the low income, for the emerging markets and developing economies,” she told Reuters.
Rising bond yields put debt progress at risk
Georgieva said many emerging economies had worked to improve fiscal policies, strengthen market confidence and reduce the premium investors demanded to hold their debt. But she cautioned that a global rise in yields could quickly erode those gains.
“Some of the emerging market economies have worked very hard to gain market credibility and compress spreads,” she said. “That could be erased by a lift in debt service costs, by the increase in yields globally by advanced economies.”
The IMF chief attributed the upward pressure on bond yields to heavier government borrowing, persistent inflation and competition for capital from debt issued to finance the expansion of artificial intelligence infrastructure.
She also pointed to continuing disruption around the Strait of Hormuz as a source of inflationary pressure. US government bonds have sold off in recent weeks, pushing the yield on 30-year Treasury debt close to its highest level in almost two decades.
The IMF estimated in 2022 that 60% of low-income countries were either in debt distress or at high risk of it. Georgieva said that position had since improved as governments adopted stronger fiscal policies with support from international institutions and official creditors, but warned that the progress was now vulnerable.
An official IMF statement issued after the Asheville meeting said rising yields in major advanced economies were lifting borrowing costs across much of the world. It added that high refinancing needs and increasing debt-service bills were limiting the ability of poorer countries to fund infrastructure, healthcare and education.
The Fund said those pressures were being compounded by a sharp decline in external financing, including reductions in official development assistance and lower flows from non-Paris Club creditors.
Georgieva nevertheless said debt markets were operating in an orderly way and that G20 finance ministers and central bank governors broadly agreed on the need to improve the system for restructuring sovereign debt.
The G20 has backed a non-binding template setting out the main terms for future debt deals under its Common Framework, with the aim of making negotiations faster and more predictable for countries facing unsustainable borrowing burdens.
Senegal has emerged as an early test of the revised approach. The IMF said it had reached a staff-level agreement on a 36-month loan programme worth about 2.2 billion US dollars, subject to approval by its management and executive board, while Senegal has indicated that it intends to seek debt treatment.
“We have the next case,” Georgieva said. “Let’s make it work, and you can be sure that the Fund would be very relentlessly pursuing speedy completion.”
