ASHEVILLE: The head of the International Monetary Fund warned Thursday that the continued shutdown of the Strait of Hormuz is driving up borrowing costs worldwide and imperiling the debt progress of developing countries.
IMF Managing Director Kristalina Georgieva said inflationary pressures from the closed strait are among the factors pushing bond yields higher, compounding risks from rising global debt levels.
“This is not just a low-income developing countries problem,” Georgieva told Reuters on the sidelines of a Group of 20 finance ministers and central bank governors meeting in Asheville. “High debt levels in advanced economies, combined with stubborn inflation, could lead to debt service costs going up for everybody including for the low-income, for the emerging markets, and developing economies.”
Developing countries face mounting pressure from elevated borrowing costs, shrinking external financing and rising debt repayments, according to the IMF.
Georgieva said high refinancing needs and debt-servicing costs are constraining spending on infrastructure, health care and education, particularly in low-income nations. Those pressures could weaken economic growth and undermine public debt sustainability, she said. Cuts to official development assistance and reduced financing from creditors outside the Paris Club have deepened the challenges.
Global public debt now stands at nearly 100% of gross domestic product, exceeding levels recorded after World War II. Georgieva warned that debt tends to surge during economic shocks but rarely declines afterward.
Global growth for 2026 has strengthened to about 3% since April, the IMF said. The global economy absorbed the energy supply shock better than expected through oil and gas reserves, alternative energy sources and demand-management measures.
Investment in artificial intelligence, including spending on power generation, has supported growth in the United States and economies tied to the AI value chain.
However, Georgieva said risks remain high. The Strait of Hormuz remains largely closed, energy reserves need replenishing, and inflation reduction has stalled in several countries.
“The policy priorities are clear,” she said. “Central banks must focus on their price stability mandate. Fiscal authorities must hammer out credible medium-term consolidation plans.”
The IMF called for faster debt restructuring where public debt has become unsustainable, including further improvements under the G20 Common Framework. The IMF and World Bank Three-Pillar Approach should also help countries with sustainable debt implement growth-supporting reforms, mobilize domestic revenue and attract private investment at lower cost, the fund said.
Georgieva said stronger debt transparency, improved debt-management capacity and better relations between borrowers and investors are essential for preventing unsustainable borrowing.
Global economic imbalances widened by 0.7% of global GDP in 2025, marking the largest increase in a decade, the IMF reported.
Georgieva called for structural reforms in surplus economies to increase domestic consumption and investment, while deficit economies should consolidate public finances and rebuild fiscal buffers.
International cooperation remains critical for managing debt, limiting cross-border economic effects and supporting balanced global growth, the IMF said.
