The figures presented by the IMF Director are worth pausing over. Despite the war and disruptions in trade and energy, the IMF still expects the global economy to grow by about 3% in 2026. However, this growth comes in a highly sensitive economic environment. Shipping traffic through the Strait of Hormuz has fallen to about 10% of its pre-war level, yet the price of oil has not reached $150 per barrel. This reflects the global economy's ability to adapt to shocks, but at the same time reveals the magnitude of the risks associated with energy, supply chains, and global trade.
The problem is that a supply shock is different from a demand shock. When inflation rises due to increased demand, the central bank can raise interest rates to curb spending and thus alleviate price pressures. However, when inflation comes from rising energy prices, transportation costs, or supply chain disruptions, raising interest rates does not increase oil supply, restore trade flows to normal, or lower transportation costs. Instead, it affects investment, consumption, credit, and growth.
The problem becomes more complex when public debt is high. Raising interest rates to combat inflation does not keep its impact within the private sector, but also reaches public finances. The more the government needs to refinance a larger portion of its debt at higher interest rates, the higher the cost of debt service and the greater the need for revenue or borrowing, and the narrower the space available for spending on education, health, investment, and infrastructure.
This point is what makes Georgieva's remarks important for Jordan. Global public debt is at its highest level since World War II, and is set to exceed 100% of global output over this decade. At the same time, long-term government bond yields in major economies have risen to levels not seen in years. The yield on 10-year U.S. bonds reached its highest level since 2007, French bonds reached their highest level since 2008, and Japanese bonds reached their highest level since 1996.
These developments do not stop at the borders of major economies. Global interest rates affect the cost of financing in the rest of the economies, especially those that rely heavily on borrowing or need to refinance their debts continuously. Therefore, a rise in global interest rates may translate into a rise in debt service costs.
The matter becomes more critical for Jordan because our economy is small, open, and quickly affected by what happens in energy, trade, transport, and the region. Rising oil prices, for example, not only mean a higher energy bill, but can also translate into higher transportation, production, and price costs, and may affect the current account and economic activity. If this shock comes at a time when interest rates are high and public debt is large, the options available to economic policy become limited.
Therefore, not every economic shock can be addressed by increasing government spending. Spending may be necessary in some circumstances, but the problem begins when temporary spending turns into a permanent commitment funded by borrowing. Then we may solve today's problem and add a new problem to tomorrow's budget. In turn, monetary policy alone cannot be held responsible for dealing with shocks that come primarily from the supply side.
What is needed is for fiscal and monetary policies to work within a coherent economic framework. A fiscal policy that controls the deficit and builds a financial margin, a monetary policy that maintains price stability and debt management that pays attention to cost, risks, and maturities, and economic policies that raise productivity, investment, and real growth.
Herein lies the importance of growth. Reducing debt is not achieved only by reducing spending or increasing revenues. An economy that grows faster expands the revenue base, increases the state's ability to service debt, and makes the debt-to-GDP ratio more likely to decline. Therefore, the issue of debt in Jordan is largely a matter of growth, productivity, and investment.
The message I see in the IMF speech is clear. The world is entering a phase where shocks will be more frequent, while debt levels are higher, and interest rates are more impactful on public finances. Therefore, building a financial margin must happen in times of stability, not after a crisis has occurred.
For Jordan, our goal should not be just to reduce the debt ratio in a given year. The real goal is to make debt less costly, longer-term, less exposed to refinancing risks, and to have the primary deficit under control, and to raise real growth sufficiently to provide a broader economic base for servicing debt.
A state that enters the next crisis with less debt, a controlled deficit, longer maturities, affordable borrowing costs, and an economy capable of growth will have broader options. Waiting for the crisis and then looking for financial space is often the most expensive option.
