IMF says higher bond yields underscore urgency of fiscal consolidation

According to Business Recorder, the International Monetary Fund has urged advanced economies and others to act quickly on cutting government spending, reducing deficits and lowering debt, warning that delay would make the task harder in coming years. Rodrigo Valdes, who heads the IMF's fiscal affairs department, told Reuters that rising bond yields are adding strain as average public debt nears 100% of GDP. Valdes also said this year's fiscal results are weaker than forecast six months ago and weaker than a year earlier, and most countries now plan to spend more rather than tighten.

Valdes pressed high-debt advanced economies to win domestic backing for credible plans that would keep borrowing costs under control over the medium term and cut the knock-on effects for other nations. On Wednesday the fund warned in a blog post that postponing adjustment would raise interest costs and narrow policy room. Interest rates on debt have also risen above expected nominal growth in several countries, making it harder to stabilise debt.

Higher oil prices, persistent inflation, strong investment demand and faster-than-expected AI growth have pushed long-term sovereign yields sharply up, the fund said. The G7 average 10-year yield gained over 110 basis points from February to September, a peak in almost two decades. The IMF projects average government financing costs, on an effective basis, to reach 3.7% by 2031, up from 2.3% in 2021.