By Jorgelina do Rosario Typically called into action when poor countries get mired in debt, the International Monetary Fund will be confronted this week with mounting signs of trouble in the wealthiest ones.

Governments in America, Europe and Japan have seen their borrowing costs soar to multi-decade highs as the US war on Iran drives inflation up. That means they have to shell out more to service historically large debts – which in turn pushes them to borrow even more. It threatens to become a vicious circle.

All of this makes for an upside-down backdrop to the annual meetings of the IMF and World Bank in Bangkok, where finance ministers and central bank chiefs will gather starting Monday.

The host nation was once ground zero for a major emerging-market crisis. The host institutions were preoccupied until lately with the post-Covid struggles of weaker economies. Now the focus is on problems that stem from the developed world — the “worst offenders” on the debt front, according to IMF chief Kristalina Georgieva — but might not stay confined there.

When borrowing costs rise at the core of global finance, like the US Treasuries market, there’s usually a knock-on impact for consumers, businesses and governments everywhere else. When the Federal Reserve or the Bank of Japan hike interest rates, as they’ve been doing in the face of $100-a-barrel oil, there’s pressure on their emerging-market peers to follow suit or risk capital flight.

Georgieva says debt and energy — along with an AI boom that’s turbocharging some economies but bypassing most — are top of this week’s agenda. Earlier in the Iran war she was emphasizing the world’s resilience, but lately the combo of rising energy prices, inflation and interest rates has gotten her sounding rattled. “In normal times, that would not be a giant problem,” she said last month. “But these are not normal times, because we have debt levels in advanced economies at historic highs.”

What’s more, the IMF chief warned, governments that have to pay bigger interest bills will struggle to afford other things, like helping their citizens with the high cost of living. “We should prepare for people being more unhappy,” she concluded. “Maybe on the street.”Even before the latest leg of the bond selloff, rich-world governments were paying over $3.3 trillion in annual interest — more than global spending on defense or AI — the Institute of International Finance reported. It noted a parallel with “debt-distressed” emerging markets of the past.

Those bills are a legacy of trillions borrowed in the cheap-money era that followed the Global Financial Crisis, and the now-higher cost of refinancing. Last month the average yield for 10-year public debt in Group of Seven countries hit 4.3% for the first time since 2008.

There’s a “precarious loop” at work, says Frederic Neumann, chief Asia economist at HSBC Holdings Plc, with “the rise in debt-service costs leading investors to push up interest rates further still.”The IMF has been warning for years about mounting debt risks and the need to trim budget deficits. Its word is like law for emerging nations on the hook for its financing programs tied to reforms. But in countries that aren’t borrowers, “that leverage is limited,” says Doug Rediker, a former US representative at the IMF.

A report from IMF’s watchdog noted that only some 15% of fiscal recommendations to advanced economies such as the US, Germany, France and the UK were fully or largely implemented.

Some economists don’t buy the notion that such countries are on the brink of a debt crisis, or that their budgets and bonds are the world’s most pressing problem.

“Debt servicing costs rise, which means deficits are a bit bigger — but so what?” says Dario Perkins, managing director at TS Lombard. Loose budgets aren’t really what’s driving yields up, he says — “to me, it’s a simple oil/monetary policy story” — and inflation should come back down when energy prices stabilize.

As for emerging markets, their improved resilience is partly down to bitter lessons learned during past crises – like the one that began in Bangkok almost 30 years ago.

After burning through reserves to defend a currency peg, Thailand was forced to float the baht in 1997. The trouble rapidly spread to Malaysia, Indonesia and South Korea. The IMF scrambled to offer jumbo loans, which back then came with tougher austerity strings attached than they generally do today. Since then governments have tightened budgets and banking rules, and built up financial buffers.

What Bloomberg Economics Says“Several emerging markets have done their homework in the past years, and arrive at this episode of market turbulence in better economic shape than in the previous ones. Smaller current-account deficits and wider reserve coverage reduce the need to run to the IMF for money.” — Adriana Dupita, deputy chief emerging markets economist. Click here for full report Some Asian leaders aren’t shy of pointing the finger at developed countries that haven’t shown similar prudence.

It’s now the “systemically important economies of the world facing the largest fiscal challenges,” Singapore’s President Tharman Shanmugaratnam told Georgieva at a pre-summit event last week. “The IMF won’t be able to rescue them,” he said, but its “fairly hard-hitting advice has to be taken seriously.”To be sure, there’s been some emerging-market impact from the jump in yields elsewhere — it’s led investors to dial back some riskier emerging-market bond bets, and countries like Thailand to eye shorter-term debt sales — but it’s been limited.

Cash-strapped countries that borrow from the multilateral banks have so far been more inclined to adjust existing project-linked loan deals than seek new ones, World Bank President Ajay Banga told Bloomberg.

If fiscal and financial risks have shifted toward richer countries, the same may be true of the political ones that Georgieva was warning about.

Civil unrest has often accompanied economic pressure, as it did in Asia during the late-1990s crisis. Jimena Blanco at intelligence company Verisk Maplecroft says it’s in developed nations that those kind of risks are now rising fastest.

In her firm’s index for civil unrest, Europe recorded the biggest deterioration over the past couple of years, with the US and Canada not far behind. France has seen student protests escalate nationwide this month, with more than 265,000 demonstrators calling for funds to address teacher shortages and deteriorating facilities.

Meanwhile, “inflation and debt repayment demand more from the state,” Blanco says. “Populations are being squeezed on both fronts.”