Speaking in Singapore ahead of the IMF and World Bank annual meetings in Bangkok next week, managing director Kristalina Georgieva said governments cannot rely on rapid economic growth to lift the burden of debt and must instead make "very tough political choices".
"My message to the world's economic policymakers will be this: we cannot keep delaying necessary policy action – you have the tools, now have the wisdom to use them," she said. "And yet we don't 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."
Bond yields – the effective interest rate on government debt – have jumped in recent weeks, reaching multi-decade highs as markets adjust to the prospect of higher inflation driven by the war in the Middle East. Georgieva noted that elevated yields are inflating interest bills at a time of tight budget constraints and competing spending priorities, including defence.
She suggested central banks should be prepared to raise interest rates to see off resurgent inflation. The ECB, US Federal Reserve and Bank of Japan have already tightened policy – moves Georgieva described as "highly appropriate" – while the Bank of England has so far held rates at 3.75%. "Now may be a good time for a prudently hawkish bias in many countries' monetary policy," she said.
Georgieva also addressed the economic impact of artificial intellingence, noting IMF research predicting that AI adoption could add half a percentage point to global growth if managed effectively. However, she urged policymakers to "help manage AI's substantial perils, including large-scale labour market fallout, serious cyber and stability risks and frontier models threatening to escape human control and run amok". The Bank of England governor, Andrew Bailey, has recently warned of similar risks posed by frontier AI models.