The Director-General of the International Monetary Fund, Kristalina Georgieva, said on Wednesday that the United States and other rich countries must act urgently to address the growing rise in global debt levels, which burdens low-income countries even more and increases pressure on the global financial system.
Georgieva explained that US Treasury Secretary Scott Besent and other US officials realize that the federal budget deficit and public debt have reached very high levels, but she warned that trying to overcome the US debt, which exceeds $40 trillion, by achieving economic growth alone will not be sufficient, according to the Associated Press.
“We at the Fund believe that growth helps, of course, but it cannot achieve the necessary adjustments quickly enough,” Georgieva said during the annual meetings of the International Monetary Fund and the World Bank in Bangkok.
She added: “There is no magic solution,” noting the need to take additional measures, including moving towards tightening financial policies and reducing debt and deficit levels.
Challenges facing public financial control
Rising levels of global debt and inflation, caused in part by rising energy costs due to the war with Iran, have pushed interest rates to their highest levels in decades, increasing burdens on the world's poorest countries.
Efforts to control debt through what Georgieva and other experts call “fiscal consolidation” have been setbacks by massive spending during the Covid-19 pandemic and its aftermath.
“Financial risks are increasing, while an appropriate response is largely lacking in many countries,” said Rodrigo Valdes, Director of the IMF’s Fiscal Department. In major advanced economies, the effects of weak fiscal discipline do not stop at the borders; Rather, it extends to the rest of the world.”
The Fund's latest report on monitoring public finances indicated that interest payments in the world's poorest countries reached record levels compared to revenues, while the decline in aid led to the emergence of financing gaps that some countries were unable to fill.
This is forcing governments to make difficult choices between supporting the most vulnerable groups and meeting debt repayment obligations.
Countries need support to create jobs and attract investments
Alexander De Croo, former Belgian Prime Minister and Director of the United Nations Development Programme, said in an interview with the Associated Press that the average developing country currently pays interest on its debts equivalent to three times what developed countries pay.
He added that about 10 percent of government spending goes - on average - to repaying debts. The combination of high prices for fuel, fertilizers, and other basic needs, the impact of the El Niño climate phenomenon, and high borrowing costs have reduced the chances of recovery for many low-income countries.
De Croo said: “Frankly, we do not see a light at the end of the tunnel.”
Providing job opportunities, especially at a time when the expansion of the use of artificial intelligence threatens to make many traditional jobs unsuitable for the labor market, is another priority. It is expected that more than 1.2 billion young people will enter the global labor market over the next decade or so, while expectations indicate that the net new jobs that will be created will not exceed 400 million.
This week, the United Nations Development Program announced the “Jobs for Prosperity” initiative, which will work with governments, development banks, including the World Bank, and private companies, to encourage investment in key sectors capable of creating jobs, such as tourism, health care, and food processing.
De Croo said that the initiative and other efforts will focus on helping countries attract investments by improving governance and policies, in addition to preparing a group of “investable projects” ready to attract financing.
He added: “These are implementable matters, and their application has been proven in many regions of the world.”
Japanese stocks ended trading Wednesday with a slight decline, after their early gains faded under pressure from semiconductor company stocks, following the announcement of the results of the Dutch chip manufacturing equipment company ASML.
In contrast, the Japanese government bond market showed strong demand for five-year issues, amid investors' reassessment of the path of interest rates.
The Nikkei index closed down by 0.05 percent at 67,744.29 points, after rising during the session by up to 0.93 percent, while the broader Topix index fell by 0.34 percent to 4,096.78 points.
Kazuaki Shimada, chief strategist at Iwai Cosmo Securities, said that the market gave up its gains after alternative trading systems showed a decline in ASML shares following the announcement of its financial results.
The Dutch stock's decline in trading on the Tradegate platform came despite the company's expectation, the largest global supplier of chip manufacturing equipment, to achieve sales in the fourth quarter that exceed analysts' estimates.
Shimada believed that the company's results were not bad, indicating the possibility that investors will reevaluate it during the next trading session.
These developments were reflected in the shares of Japanese semiconductor equipment companies, as “Tokyo Electron” shares fell by 2.73 percent, after giving up its early gains, while “Advantest” shares, which specializes in chip testing equipment, ended the session down by 0.05 percent.
These movements reflect the sensitivity of Japanese technology-related stocks to the results of global companies operating in the semiconductor supply chain, especially with the growing investments related to artificial intelligence.
But the sector's performance was not entirely negative; Fujikura, a manufacturer of fiber-optic cables, rose by 2.56 percent, and Taiyo Yuden rose by 3.59 percent, topping Nikkei's gains, supported by investor interest in electronic capacitor components used to regulate power inside artificial intelligence servers.
In the financial sector, banking stocks were subjected to noticeable pressure, becoming one of the most prominent factors weighing down the Topix index.
Mitsubishi UFJ Financial Group shares fell by 1.94 percent, while Mizuho fell by 2.87 percent, and Sumitomo Mitsui fell by 1.85 percent.
The weakness of Japanese banks came after the shares of major American financial institutions declined in the previous session, as Citigroup shares fell by 5.6 percent, and Goldman Sachs fell by 0.2 percent, despite the two companies exceeding profit expectations.
The market movement showed a widening scope of the decline, as the shares of 57 percent of companies traded on the main market of the Tokyo Stock Exchange declined, compared to an increase of 38 percent and stability of about 3 percent.
In the bond market, the five-year Japanese government bond yield stabilized near 2.34 percent, after reaching 2.35 percent during the session, before later recording 2.345 percent.
This came after an auction conducted by the Japanese Ministry of Finance, which received purchase orders equivalent to 3.56 times the volume of bonds offered, exceeding last year’s average of 3.36 times.
Takashi Fujiwara, lead fund manager at Resona Asset Management, said that the strength of demand was partly affected by the decline in French bond yields, in addition to changing investors’ expectations about the future path of Japanese interest rates.
He explained that the markets have begun to realize the possibility that the cycle of raising interest rates at the Bank of Japan is approaching its end, which has enhanced the demand for medium-term bonds.
He added that investors expect the final interest rate to reach a range between 1.75 and 2 percent by next June, noting that the limited upward risks to inflation expectations support this vision.
The 10-year Japanese government bond yield fell by half a basis point to 2.995 percent following the auction.
Wednesday's transactions reveal varying investor attitudes in Japan. While the results of global chip companies spark volatility in technology stocks, bonds benefit from expectations that monetary policy will approach more stable levels.
The results of major technology companies, along with inflation indicators and the Bank of Japan’s upcoming decisions, will remain decisive factors in determining the direction of stocks and bonds during the coming period.
The International Energy Agency, in its latest monthly oil market report, said on Wednesday that diesel supply shortages could continue into next year, due to significantly reduced inventories, in addition to production restrictions ahead of peak winter demand.
Diesel refining profit margins reached record levels of about $95 per barrel in September, with production declining sharply due to a decline in refining capacity, as a result of attacks linked to the US war on Iran.
The agency added: “Diesel markets are still under great pressure. The continuation of supply disruptions for a long period forced the withdrawal of stocks, contrary to what is usual in the season before refinery maintenance work in the fall and peak demand in the winter.
In a first of its kind, US President Donald Trump announced on Friday Russia's approval to supply diesel to global markets, saying that his administration had temporarily lifted US sanctions imposed on Russian fuel, which were put in place to deprive Moscow of any revenues it might use in its war with Ukraine.
Trump defended the “diesel agreement” with Russia, at a time when lawmakers from both the Republican and Democratic parties complained that the agreement appeared to violate a US law banning Russian energy imports until Moscow ends its aggression against Ukraine.
Trump said that the agreement to lift sanctions on Russian oil exports would help reduce high fuel prices, but some analysts doubted that the amount of diesel that Trump said Russia would provide during the next three months would be sufficient to have a tangible impact on prices. It is equivalent to only about 12 hours of global fuel consumption.
Diesel prices around the world rose to record levels, exceeding $6.5 in the United States of America, before calming down slightly after the announcement of the “diesel agreement” between America and Russia.
