IMF Chief warns rising bond yields could erase developing nations’ gains

Rising bond yields in advanced economies threaten to reverse hard-won progress by developing and low-income countries in bringing their debts under control, International Monetary Fund Managing Director Kristalina Georgieva has warned.

Speaking in an interview on Tuesday on the sidelines of a G20 finance leaders’ meeting in North Carolina, Georgieva said yields were being driven higher by expanding debt, persistent inflationary pressure linked to the continued closure of the Strait of Hormuz and competition for capital from artificial intelligence-related borrowing.

She stressed that the threat extended beyond low-income countries. Heavy debt in advanced economies, combined with stubborn inflation, could raise servicing costs for borrowers worldwide, including emerging markets and developing economies.

US government bonds have sold off in recent weeks, pushing the yield on 30-year Treasuries close to its highest level in nearly two decades.

The IMF estimated in 2022 that 60% of low-income countries were experiencing debt distress or faced a high risk of it.

Georgieva said the situation had subsequently improved through strong fiscal reforms backed by international institutions and official creditors, but warned that those gains were now in jeopardy.

Several emerging economies had worked hard to strengthen their credibility with investors and narrow the additional yields demanded on their debt, she said.

Rising benchmark yields in advanced economies could wipe out those improvements by lifting refinancing and debt-servicing costs.

Despite the warning, Georgieva said debt markets continued to operate in an orderly manner.

She was also encouraged by broad agreement among G20 finance ministers and central bank governors on improving the Common Framework for debt restructuring and accelerating relief for countries in distress.

The framework was launched in November 2020 during the Covid-19 pandemic to bring official and private creditors together in restructuring the debts of crisis-hit countries.

However, agreements for its first two debtor countries, Chad and Zambia, took years amid disputes over how losses should be divided among private creditors, international institutions such as the IMF and World Bank, and China, their largest lender.

A revised process agreed in May is intended to accelerate restructuring by setting out the required steps and connecting them to IMF financial assistance. It also requires a memorandum of understanding with the creditors’ committee covering the principal terms.

Senegal is emerging as an important test. During the G20 session, the IMF announced a staff-level agreement on a three-year financing programme worth approximately US$2.2 billion, conditional on Senegal seeking debt treatment.

The proposed 36-month Extended Credit Facility arrangement is intended to support Senegal’s economic and financial reform programme for 2026–2029.

The IMF said the programme would focus on restoring debt sustainability, strengthening public finances and reducing fiscal and external vulnerabilities.

Georgieva said a fast and effective Senegalese restructuring under the improved process could encourage other countries to seek similar treatment.

“Let’s make it work,” she said, adding that the IMF would press relentlessly for a speedy conclusion.