Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy. The jump in government borrowing costs this year is causing concerns at the International Monetary Fund, as policymakers gather in Bangkok for its annual meeting. In its new fiscal monitor report, released this morning, the IMF is warning that the rise in sovereign bond yields has “raised the fiscal stakes” facing governments, as they try to keep borrowing under control.
Higher borrowing costs are adding to fiscal pressures at a time of high debt, making credible consolidation more urgent, it points out. And it is demanding action, warning that “the more countries wait, the more painful the adjustment becomes.” This is easier said than done, though! France, for example, faces a struggle to push through a budget that would only cut its annual deficit to 5% of GDP.
And in the UK, chancellor John Healey could face a battle with his own MPs if he proposes welfare cuts in his budget later this month. The IMF points out that since February – when the Iran war began, and oil prices jumped – the average 10-year government bond yield for G7 countries increased by over 1 percentage point, reaching its highest level in nearly two decades. With global public debt expected to exceed 100 percent of global GDP for the first time since the immediate aftermath of World War II, this is not a great time for borrowing costs to be hitting the roof.
In major advanced economies, high debt, spending pressures, and the prospect of large bond issuance in the years ahead are putting upward pressure on the yields investors demand to hold longer-term bonds. Higher benchmark yields in major economies can also spill across borders, worsening debt dynamics elsewhere. The IMF points out that the cost of servicing government debts have already jumped sharply.
In the US, for example, interest payments are projected to climb from about 2.8% of GDP before the pandemic to 5.7% in 2031, which is roughly equal to projected expenditure on Social Security. It’s worse for low-income countries, where interest payments today consume over 15% of tax revenues. 9am BST: Foreign secretary Ed Miliband speaks at the IMF Annual Meeting in Bangkok 9.15am: Treasury select committee hearing on Heathrow expansion plans 1.30pm US inflation report for September 2.15pm Treasury Committee hearing on the Budget 2026
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