IMF Chief: Developed Economies Are the Main Culprits for Budget Imbalances

Last week’s meetings of the International Monetary Fund (IMF) and the World Bank (WB) did not provide developing countries with new answers to questions raised by the expansion of the war in the Middle East, the ongoing war in Ukraine, rising debt repayment costs, and a potential “bubble” in the artificial intelligence sector, Reuters reported today.

Lower-income countries are facing actions by wealthier states, such as rising debt repayment costs, higher inflation, and the risk that, due to the AI boom, they will find themselves at an even greater economic disadvantage.

They received the usual advice that international lenders always give, such as reducing fiscal deficits and accelerating economic reforms, in order to attract more private sector investment.

The Managing Director and Chair of the IMF Executive Board, Kristalina Georgieva from Bulgaria, stated that developed economies are the main culprits for budget imbalances.

She noted that the debt level of developing countries has decreased in recent years, but that, due to a sharp rise in bond yields in other markets, their borrowing costs have increased.

Average debt repayment expenditures there have more than doubled compared to ten years ago, reaching 14 percent of government revenues and crowding out funds intended for education, healthcare, and other key areas, she said.

Georgieva also stated that many issues remain unresolved, especially regarding artificial intelligence.

“We are in a situation where we have many more questions than answers. That is why I warn everyone: do not fall for those who pretend to have answers. They are deceiving you,” she said.

Reuters also notes that geopolitical tensions, such as the war in Ukraine and multiple conflicts in the Middle East, are shaking the IMF and WB, as well as their coordinated actions.

This was also evident during this week’s meetings, when nearly half of the delegates on the IMF executive board left the room when the Russian finance minister took the floor.