Industry Odisha Bureau, Oct 18: Kristalina Georgieva says inflation and rising debt costs are hurting poor countries most. She warned that disappointing AI returns could spark a disorderly market correction. Global growth is still projected at 3.1% in 2026.
IMF chief Kristalina Georgieva has warned that inflation and debt costs hurt poor countries most. Speaking in Bangkok, she urged policymakers to boost financial and policy support for low-income nations. “Inflation is like a tax on the poor,” she said. The remarks came at the IMF and World Bank annual meetings.
She paired that warning with a caution about markets. Optimism around artificial intelligence, she said, has become a source of risk. If near-term AI returns disappoint, a disorderly market correction could follow. The world economy remains resilient, but faces clear vulnerabilities.
Inflation bites hardest where incomes are lowest. Poorer households spend much of their budgets on food, energy, housing and transport. When those prices rise, little income remains for anything else. Georgieva said people everywhere dislike inflation, especially in poorer countries.
Government budgets face a parallel squeeze. Debt servicing averaged 6% of government revenue a decade ago, Georgieva said. It now runs at up to 8–14%, driven by higher interest rates. These shares refer to revenue, not GDP. Money spent on interest cannot fund schools, health or infrastructure. Many poor countries have cut debt-to-GDP ratios through tough structural reforms. Yet a lower debt ratio does not guarantee cheaper borrowing.
The reason lies partly in richer economies. High Western interest rates pull global capital towards dollar and euro assets. That can weaken developing-country currencies and raise the cost of foreign-currency debt. Weaker currencies can also lift import prices, feeding inflation. Georgieva said higher benchmark yields are raising emerging-market borrowing costs. This holds even where country risk premiums, the extra spread lenders demand, are stable. She expects elevated financing costs to persist.
The IMF still sees global growth of about 3.1% in 2026. That is unchanged from April’s forecast but below 3.4% last year. Georgieva cited the economy’s resilience, AI’s promise and Asia’s dynamism as supports. She listed inflation, high debt, wars and climate risks as worries.
AI drew her sharpest warning. The global economy, she said, is “standing on one leg, the AI leg”. She invoked Amara’s Law, which holds that society overestimates technology’s short-term impact. It also underestimates the long-term transformation. Markets often price expected gains long before they show up in earnings. High valuations leave less room for disappointment.
Georgieva also flagged circular financing in the AI sector. This occurs when investors, suppliers and customers fund one another. Such loops are not necessarily improper, but they can blur true underlying demand. With a broader pullback, Georgieva warned, these pressures could lower global GDP 1.1% by 2028. This is a downside-risk estimate, not the IMF’s baseline forecast. A correction could still hit confidence, corporate financing and investment.
The world economy is still growing, but on uneven footing. Policymakers must curb inflation without starving indebted economies of affordable finance. AI may yet transform productivity over time. But its long-term promise does not remove the near-term risk to markets.
