IMF meetings: UK finance minister to urge major economies to control borrowing

As the US-Iran war adds to global inflation risks and pushes up government borrowing costs, Britain’s finance minister John Healey will urge major economies to strengthen their public finances at the International Monetary Fund’s annual meetings this week.

Healey will call for credible plans to bring government borrowing under control as countries face rising debt-servicing costs and pressure to spend more on defence and support households and businesses, the UK finance ministry said.

“I will work with our international partners to keep trade moving, support families and businesses, and make Britain’s economy stronger and more resilient,” Healey said in a statement released by his office.

The IMF and World Bank are holding their annual meetings in Bangkok this week, where finance ministers and central bank chiefs are expected to discuss the economic impact of the widening conflict in the Middle East, particularly its implications for energy prices and inflation.

Healey is also scheduled to meet Ukrainian Finance Minister Sergii Marchenko and other international counterparts to discuss economic resilience.

Rising borrowing costs put pressure on governments

Government borrowing costs in major economies rose to their highest levels in decades last week, driven by investor concerns over inflation linked to the US-Iran war, elevated public debt and the possibility of higher interest rates.

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Higher borrowing costs make it more expensive for governments to service existing debt and can limit the funds available for public services and investment. If energy prices remain elevated, governments could also face pressure to support households and businesses facing higher costs.

International Monetary Fund Managing Director Kristalina Georgieva and Bank of England Governor Andrew Bailey have also highlighted the need for governments to manage debt and maintain credible fiscal plans.

The discussions come as policymakers face the challenge of balancing support for their economies with efforts to keep public finances sustainable.

UK budget faces difficult choices

For Britain, the IMF meetings come ahead of Healey’s first annual budget on October 28. He has pledged to maintain fiscal discipline and keep the government’s plans to reduce borrowing on track.

However, higher debt interest costs and competing spending priorities could complicate those plans. The government faces demands for increased defence spending and measures to reduce energy costs, even as it seeks to control borrowing.

Britain’s Institute for Fiscal Studies estimates that Healey may need to raise £36 billion in taxes to fully offset the erosion of government budgets caused by higher inflation and fund additional defence spending.

The think tank said the amount would be equivalent to increasing the main rate of income tax by three percentage points.

The estimate highlights the scale of the choices facing the government as it attempts to meet spending commitments without allowing borrowing to rise beyond its targets.

Healey’s discussions with international counterparts are expected to focus on strengthening economic resilience and maintaining fiscal discipline as geopolitical tensions add to uncertainty over inflation, energy supplies and interest rates.