‘Turning the bond markets to advantage’: Dialogue between President Tharman Shanmugaratnam and IMF Managing Director Kristalina Georgieva on 7 October 2026 at the Lee Kuan Yew School of Public Policy

Professor Danny Quah: It is now my honour to invite the President of the Republic, President Tharman Shanmugaratnam, to the stage to participate in this fireside chat.

There are many issues I want to dig into in the speech and the kind words that you have placed about Singapore. But I thought a good way to begin our fireside chat is to ask President Tharman for his reflections and his reactions to the speech.

President.

President Tharman Shanmugaratnam: Kristalina, if you don't mind, Kristalina, thank you for your clarity and candour.

Kristalina's curtain raiser speech exemplifies what the IMF is about. People think of the IMF often as some sort of global rescue force. Yes, it is a very important part of the global rescue system when countries fall in trouble. But that's not the fundamental role of the IMF.

The fundamental role of the IMF is what's called surveillance: telling the world, including the most powerful countries, where the storm clouds are, how they're moving, and what we need to do to avoid the hurricane.

And I think you've done that exceptionally well in your curtain raiser speech.

What's changed over time is who the prime actors you're referring to are.

If you think of the main themes of Kristalina's speech, and particularly the challenge of resetting fiscal policy and ensuring that debts are brought down to more sustainable levels.

In the 1980s, 1990s, and the noughties or the first decade of the new century, they were principally emerging markets. We had some very difficult problems in emerging markets.

Then we entered the 2010s, when it was a group of European economies that had the largest problems. They troubled Europe and they troubled the world. And the IMF had to expend very significant resources to support their structural adjustments and their very painful transition back to being able to tap on the markets. In fact, the global community got together to raise substantial additional resources for the IMF for the purpose.

But those were still relatively small European countries. Now we are talking about something different. We are talking about the largest, the systemically important, economies of the world facing the largest fiscal challenges. The IMF will not be able to rescue them. But all the more, that your objective, fairly hard-hitting advice has to be taken seriously. And the markets too need to listen carefully to what the IMF says. You can't go there with a fire hose; you can only warn, you can advise, and we all have to be prepared.

I would say the most important exhibit which Kristalina showed was on what economists call r minus g  -  the interest rate on government borrowings compared to the rate of economic growth. Her main point was, you can no longer be complacent because interest rates are no longer significantly below economic growth, and in many countries they're now higher. And that's now a structural situation. It's not cyclical; it's here to stay.

I would go further. There are those who hope economic growth is going to go through a new miracle phase, and therefore debt-to-GDP ratios come down. But even then, there's a further twist to the problem, which is that future growth may not mean the same pace of future government revenue growth. Ultimately, it's what happens on your government budget that matters.

You've got a growing interest cost on your budget, and you need revenues to keep pace. And it may very well be that if we succeed in the AI revolution, we will get a different distribution of income between capital and labour. And the same advanced economies we are talking about, the same systemically significant economies, are ones which actually get most of their tax revenues from labour, not from capital.

So that's a further challenge. And it means we have to sit back and reset fiscal policy in a far more fundamental way, and avoid the complacency of simple arithmetic ratios: debt divided by GDP, and you hope GDP growth is rapid enough, and therefore the debt-to-GDP ratio comes down. It will not be as simple for their budgets.

Professor Quah: Thank you very much, Mr President. You've raised so many issues that we need to come back to. But I thought I wanted to pick up, and in particular, the fiscal situation, the severity, and the non-complacency we need to build in.

But I wanted to pick up first on an intersection point, where you talked about the historical trajectory of different parts of the world.

Managing Director, your speech was one that talked about, that celebrated the success of Asia, but it also did not shy away from the challenges that we face in the global economy today. One of the things you showed us was the difference between what's happening in advanced countries, what's happening in developing countries.

I wanted to ask you to say a bit more on that. What are the relative priorities that these different parts of the world might need to keep in mind?

IMF Managing Director Kristalina Georgieva: When we look at the fiscal picture today, it reminds me of stairwell. We get a shock; governments rush to help people and businesses. They borrow. Then comes a better time. They do nothing. Then comes the second shock. They rush, they borrow. They help people and businesses. They step up.

We have had three of these shocks just in this decade.

And when you delay action, when you have some space that allows you to reduce your level of debt, but you don't use it, the accumulation of debt becomes much harder to cope with.

So, what is my greatest worry?

We are in a place where people received help when they needed it. They got accustomed to having this help. What they already got, they don't want to let go, and yet new shocks are coming and demands are going up. This is the public, the voting public.

And then we have policymakers. They recognise they need to act, but they find it very difficult in this context, to take action.

And this is why, in my speech, I emphasise the importance of explaining to people why restoring sound budgets, reducing the level of deficit, the level of debt, is paramount. And having the courage to drive this action.

Because this stairwell that we have been climbing on, it is a stairwell not to heaven. And I look at the at the steps taken, some countries have been able to act, and they need to be an inspiration for others.

Professor Quah: Thank you, Managing Director. We come back to this fiscal situation, and we are all agreed that building and rebuilding fiscal space now takes on extreme urgency. At a time when debt levels are high, borrowing costs elevated. It's even more difficult to make up this shortfall.

Mr President. I wanted to pick up on that point in connection with comments you've made about a new fiscal and social compact. I wonder if you could share with us some of your latest thinking on the economic durability, the social consequences of this this collision of forces.

President Tharman: Well, first, just to follow on what Kristalina said, I can't help thinking that we have to thank the bond markets. The bond markets are a blessing in disguise.

The reality we live with is that, partly because of polarised and fragmented electorates, leaders in the affected countries are not going to volunteer the truth until they have no choice. They're not going to force painful choices on the electorate until they have no choice.

So the bond markets are the only discipline we have now: they're forcing the issue, and telling everyone that well, if you don't act when you're on this step, (the problem grows) and you go up to the next step.

In other words, not only do you not have a free lunch, but lunch gets more and more expensive. So, the earlier we act, the better.

So, thank the bond markets. It's not yet a meltdown. It's not yet a revolt. We don't have what we saw in 2002 in the UK. Not yet, but it could happen.

It's a warning. And governments need to sit back, realise these aren't simply market disorders, they’re actually rational signals from a multitude of players in global markets sayings you've reached the limit, and you now have to make hard choices.

And that can be an advantage politically. It can turned to advantage.

IMF MD Kristalina: It is for a reason that the saying is: fear God and the bond markets.

President Tharman: To look at it positively, what has worked?

You know, one of the countries that I was most impressed by in my experience in the past as a finance minister and when I was chairing the IMFC, was Portugal.

Portugal knew when its sovereign bonds had spreads of about 1,200 basis points, in other words, 12 percentage points higher than German sovereigns, that it had no choice. And we spent a lot of time at the IMFC discussing Portugal, Greece, Ireland, several other countries. But Portugal, with all the imperfections of the IMF programme at the time, got good advice, and most important, it took ownership. It took national ownership of the problem. There was no bluffing. They took ownership, and they made major adjustments. You can imagine how painful it was: taking a primary fiscal deficit down by six percentage points of GDP within a few years.

But they went about it in a way that was socially progressive. They didn't touch pay and pensions at the lowest level. The middle class and the upper middle class had to take the brunt of the adjustments.

But very importantly, and this applies to many countries today. It wasn't just about cutting expenditures and raising taxes. It was about going for efficiencies. The IMF fiscal department doesn't get a lot of the headlines, but they put out really good stuff. They found that even among the advanced countries, if each of them was to spend as efficiently as the best performer in that class - say in healthcare, in education, or whichever the sector - they could save 30 to 40% of their budget. 30 to 40% of your budget, that's enormous, without compromising what you are trying to deliver through government spending.

Efficiency, design, fairness; these are very important principles. It's not just about making brutal macroeconomic adjustments; it's about the redesign of fiscal policy.

Professor Quah: Go ahead, Kristalina.

IMF MD Kristalina: Well, I very much agree that governments can learn from each other much more than they have been doing. And we see this as being our job, primary job: show what others are doing and how it works out.

And I can say with pride that I look at the countries today in Europe, which are the best performing countries? Those that had IMF programmes a decade ago. Why are they so good? Because they owned the reforms they undertook.

And if we can press during our annual meetings for these examples of good practice, of best practice, to spread around, we can have a softening of the pain that inevitably, when your debt is high, your deficit is high, and interest rates are jumping up, you have to endure.

Work together, less pain.

President Tharman: So, if you look at Portugal today, its spreads are lower than most of Europe.

IMF MD Kristalina: They were on the graph. France and Italy up, Portugal, Ireland way below.

But when your neighbourhood is in trouble and misbehaves, there are spillovers. So, spreads for Portugal, for Ireland, for Greece, they are also going up.

Professor Quah: Thank you. I want to come to this idea about discipline, but I can't resist jumping in on the bond market.

I want to say, as an academic economist, how rare it is to hear political and institutional leadership celebrate the discipline that the bond markets give, because most political leaders don't want to have that discipline confront them.

One of Bill Clinton's advisers, in a conversation with others, you know, in a conversation about which Marvel comic book superhero would they want to come back as. And the one who won that argument was the one who said, "I want to come back as the bond market.” This is the one that wins them all.

On the question of discipline, for the both of you, we are now living in a time of fiscal pressure. There's persistent stress in the system.

In the history of these kinds of things, there has often been an unfortunate blurring of the line between fiscal policy and monetary policy. And it is important that we think about safeguards that ensure monetary policy credibility.

I want to invite the two of you to share your ideas about how we might do that, and what the dangers are if we don't.

IMF MD Kristalina: The most important task for monetary policy today is to focus on price stability. And communicate clearly that they would act monetary policy. Central banks would act to protect price stability. They can only do it when central banks are independent.

And when central banks resist pressure that may come from the fiscal side to ease the burden by basically coming stepping up, buying debt, making it so that the situation for the fiscal side eases.

I would call these monetary cowboys running to the rescue of the fiscal agents. And my message is: Please don't. Focus on your job. It is price stability. Concentrate on doing it. And we are very loudly supporting the independence of central banks, acting responsibly based on evidence to protect the economy, protect the public.

Professor Quah: Thank you. Mr President?

President Tharman: The key problem, and it's not an economic problem but a political economy problem, is that there's always a temptation on the part of governments to want to impose their will on central banks, especially on monetary policy but sometimes also in the supervision of individual banks, such as those favoured by the government.  

As Kristalina was speaking, I was reflecting on the phases we've gone through. ‘Fiscal dominance’ used to be viewed as an emerging country problem, and it was a fair description. Governments would change central bank governors when they didn't like what they were doing, and the central bank governor was typically someone more junior in the system than the finance minister. It was the norm across the developing world. Central bank independence, even if it was there in law, was not observed in practice.

But when we got to the situation after the global financial crisis, this blurring between fiscal and monetary policy became apparent in the advanced countries - because of QE, the massive quantitative easing that central banks engaged in, where they began purchasing a large proportion of the debt issued by government. They were effectively financing the government, even if their goals lay in monetary policy. It took central banks into the fiscal policy space.

It was de facto fiscal dominance. Now we are in the phase where advanced country central banks are gradually withdrawing QE and running down the large stock of government bonds on their balance sheets.

But I think going forward, we face two more subtle forms of fiscal dominance.

The first comes from what we were discussing earlier. Because governments are now burdened by large fiscal deficits and much higher debts as a starting point, their ability to deal with future crises is much constrained. Their room for manoeuvre in managing crises will be much constrained.

If you get another COVID-like situation, or a recession, or some turbulence in the AI cycle and capex gets withdrawn significantly, governments cannot step to boost demand in the way they did in COVID, because

IMF MD Kristalina: No fiscal space.

President Tharman: No fiscal space. So the burden will fall on central banks. And with each crisis, more of the burden falls on central banks to ease monetary policy, or maybe engage in another round of QE. And that will lead on average over time to lower interest rates than should be the case, more leverage being created in the system, higher inflation than would have been the case, and gradually less credibility for the central bank. Not because central governments are forcing the hand of the central bank, but by virtue of the fiscal authorities having run out of space and the burden now falling increasingly on central banks.

There will be a second type of problem – again, a more subtle form of fiscal dominance. We are going to face disorderly market conditions more often. An extreme version was the UK in 2022 (famously called the Liz Truss moment), but there'll be, even in the largest bond market in the world, moments of disorder. Because when you're operating at very high levels of debt - and when the investors purchasing your debt are now no longer just the traditional, stable, sovereign investors and a large proportion of your investors are instead hedge funds and other leveraged players, with much more complex trading strategies - from time to time, there's going to be disorder.

And again, who steps in to resolve the disorders? The central banks. Because they do have that responsibility of preserving financial stability.

So, you'll get a situation where, time and again, the market will perceive the central bank as being willing to step in to resolve disorder. And that leads again to complacency and higher leverage. 

These are the more subtle forms of fiscal dominance we have to guard against in future, even if you don't have governments explicitly forcing the hand of central banks.

IMF MD Kristalina: The only glimpse of good news on this horizon is what has happened in emerging markets? Emerging markets today have more discipline. On the monetary policy front, they are as good or better than advanced economies. On the fiscal front, it's more complicated, but also a lot of progress has been made.

How did they get from there to here? Well, pain leading to course correction, and then benefiting from strong fundamentals and recognising strong fundamentals are worthy to protect.

The risk you're describing is that advanced economies may be slipping into a territory where the only way to get to the same place is through lessons that are hard to learn.

So, this is why we appeal to our members: act early, on your own, not when your hand is forced. So next week in Bangkok, loud and clear, this is the message we will be communicating.

Professor Quah: Thank you both for such clear statements: price stability, the dangers of fiscal dominance, the message they are going to be giving Bangkok.

We've come to almost the end of the session, but I am very keen to take at least one question from the audience, and I see a hand up already? So, if we could get you to come, and if you can make your question succinct, we give maximum time to Managing Director and President.

Question: Thank you so much for the discussion. I'm Natalie. I'm a student at the Lee Kuan Yew School of Public Policy, and I'm from Singapore. So, my question is, President Tharman, Managing Director, in today's fragmented world, what does effective international cooperation look like, and where can the greatest difference be made, in your opinions? Thank you.

Professor Quah: Thank you.

IMF MD Kristalina: We are so interdependent. There is no way we can break the world into pieces, and each one of them could go on its own. That's simply not possible.

We have seen when the trade tensions began, majority of the countries in the world resisted the temptation of protectionism. They said, "Well, thank you, but no, thank you.”

And what is the result? Increase in regionals, cross-regional, plurilateral cooperation, massive increase in trade agreements.

Not optimal. Optimal is we all agree, but effective.

My view is that we at the IMF have a huge responsibility to demonstrate why cooperating on issues, especially of global nature, is paramount, and it is in everybody's interest. And create space for these conversations, where countries can find the path to agreement even in this more complex, more fragmented world.

In my hearts of hearts, I believe that we, as community, we will work together. It would be sometimes not as optimal as we wish it to be, but we are all in this one boat that happens to be in very rough waters.

It is suicidal if we were to, if I were to say to President Tharman, "Well, my end of the boat is fine; it's yours that is sinking.”

And that I think creating the understanding of our interdependence, showing that there is value of solving problems together, and accepting that our world is less perfect, but that's the only world we have.

Short of Elon Musk sending us to Mars, we are right here on this planet. We have to figure it out. We have to work together.

Professor Quah: Thank you. Mr President?

President Tharman: Actually, I should have let Kristalina have the last word because you put it so well. And by the way, since you're in Asia, there’s a good saying for that analogy you used of being together on the boat. It's a Chinese saying, "风feng1 雨yu3 同tong2舟zhou1”:  through the wind and rain, we are in the same boat together. It's an old saying, but still has resonance, in how we view not just communities but in the relations between nations that you spoke about.

I would add another point on international cooperation that has to do with the IMF; this is about macroeconomic surveillance. And, you know, we talk a lot about international order when it comes to peace, when it comes to many other issues now like maritime law, and when it comes to trade arrangements.

But don't forget that macroeconomic policies are fundamental to a stable global order. And in particular, I would say what the U.S. and China each do in their domestic macroeconomic policies has significant international repercussions.

If the U.S. doesn't address forthrightly and in time, its growing fiscal deficit, there will be implications not just for the U.S. as interest costs will crowd out other expenditures, but there'll be implications for the rest of the world too because global bond yields are going up. And there'll be implications for the proportion of global finance that flows into financing the US deficit. An inordinate proportion of global finance already goes to financing government consumption in the most advanced economies.

China too will also have to recognise, in its own interests, that its efforts to achieve domestic balance - in other words, a better balance between production and domestic demand - while that's a domestic agenda, is also extremely important internationally. Because for China to continue to succeed as a major supplier of goods to the world, it will have to be a major source of demand as well. That's in China's interests, and it's in the world's interests. It will lead to a more stable form of global interdependence.

IMF MD Kristalina: Can I just say: this is the programme of work we have embraced at the IMF.

What we see is, for the first time in some time, excessive imbalances are growing. And this growth of excessive imbalances creates problems for the countries, U.S., China, also to some extent Europe, and it creates problems for the whole world.

A very simple statement here is: the U.S. has to save more, China has to spend more, Europe has to invest more. And we are taking this message actively to these countries, to the rest of the membership.

President Tharman: And no one can pretend that this will be an easy task for them, either in the US or China. In the US, it involves very painful fiscal choices. In China, they've now embarked on a major new infrastructural investment push, which will, I think, add significantly to domestic demand and help the rest of the world. Raising domestic consumption in China is not a simple task, let's be very clear about that. It's a multi-year task involving pension reforms, finding ways to raise the household share of income, and other shifts. It's not a simple turn of a macroeconomic switch.

So, we must understand the complexity of the task, and that adjustments will take time. But in the meantime, find ways for the relationship in trade and investment between the major economies of the world to be put on a more stable footing.

Professor Quah: Both of you, thank you so much for such clear, powerful statements.

Very sadly, we have reached the end of this session. I know that the excitement of the conversation could have kept us going for quite a while, but we have reached the end. I want to thank the audience for your attention, but most of all, I want to invite you to join me in thanking our two wonderful speakers.