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Speaking to media on the sidelines of a G20 finance leaders’ meeting in North Carolina, IMF chief said higher global debt levels, persistent inflation pressures linked to the closure of the strategically vital waterway and increased competition for capital from artificial intelligence-related borrowing were contributing to rising bond yields WASHINGTON/ASHEVILLE: The continued closure of the Strait of Hormuz is pushing up borrowing costs globally and threatening hard-won progress made by developing and low-income countries in managing their debt, International Monetary Fund (IMF) Managing Director Kristalina Georgieva has warned.

Speaking to media on the sidelines of a G20 finance leaders’ meeting in North Carolina, Georgieva said higher global debt levels, persistent inflation pressures linked to the closure of the strategically vital waterway and increased competition for capital from artificial intelligence-related borrowing were contributing to rising bond yields.

“This is not just a low-income developing countries problem,” Georgieva said, warning that high debt levels in advanced economies combined with stubborn inflation could push up debt-servicing costs for emerging markets and developing economies as well.

She noted that several low-income countries had made progress in reducing debt vulnerabilities since 2022, when the IMF estimated that around 60 per cent of low-income countries were either in debt distress or at high risk of distress. Georgieva attributed the improvement partly to fiscal reforms undertaken by governments with support from international institutions and official creditors.

However, she cautioned that the gains could now be reversed as higher global yields increase financing costs. Emerging-market economies that had worked to improve market credibility and narrow borrowing spreads could see those achievements undermined by rising debt-servicing expenses, she said.

The economic concerns come as shipping activity through the Strait of Hormuz remains sharply below normal levels. Preliminary data from maritime intelligence firm Kpler showed that only six commodity vessels transited the waterway on Wednesday, compared with 11 a day earlier and a 10-day average of around 13 vessels.

The vessels included two very large gas carriers, two long-range tankers, one Supramax tanker and one Panamax tanker. Analysts cautioned that the figures could change because some vessels switch off their transponders during voyages.

The Strait of Hormuz is a crucial global energy corridor, and prolonged disruption has raised concerns about energy supplies, inflation and transportation costs. Reduced maritime traffic has also added pressure to financial markets already facing uncertainty over interest rates and government borrowing.

Despite the risks, Georgieva said debt markets were still functioning in an orderly manner and expressed optimism over G20 efforts to improve the Common Framework for debt restructuring.

The IMF has also reached a staff-level agreement with Senegal for a $2.2 billion three-year loan package, conditional on the country seeking debt treatment under the framework. Georgieva said a successful and faster restructuring process for Senegal could encourage other debt-distressed countries to seek similar relief.