BANGKOK, 14 Oct (Reuters) – The United States cannot overcome the growing public debt solely through economic growth, without tax or spending adjustments, while China needs to shift from an export-led growth model to one based on domestic consumption, IMF Managing Director Kristalina Georgieva said on Wednesday.
Georgieva urged the two largest economies in the world to undertake painful policy changes to reduce the rising fiscal and trade imbalances, while her head of fiscal affairs stated that inflation, high levels of debt, and rising bond yields have increased the urgency of fiscal consolidation worldwide.
Speaking at the IMF and World Bank’s annual meetings in Bangkok, Georgieva highlighted advanced economies, particularly the United States and European countries, as the “worst offenders” with regard to excessive indebtedness, with higher benchmark yields having repercussions for low-income countries that have already been forced by financial markets to curb their debts.
Questioned at a press conference whether the United States needs a tighter fiscal policy, Georgieva said that the U.S. Treasury Secretary, Scott Bessent, recognizes that the U.S. deficit and debt levels are very high and need to become more sustainable.
The call for more action to reduce debt was reiterated in the IMF’s Fiscal Monitor report released on Wednesday, which warned that delays in an era of higher debt-servicing costs would only make the task more difficult in the coming years.
Although this message is a recurring one from the IMF, Rodrigo Valdés, head of the IMF’s Fiscal Affairs Department, said that the rise in bond yields left governments with little fiscal room to maneuver.
“We emphasise the urgency of our message,” he added.
