JAKARTA - Assistance from the International Monetary Fund (IMF) never comes without pain.
Five decades ago, in 1976, Britain received the IMF's largest rescue package after a sterling crisis and bond investor flight forced then chancellor Denis Healey to seek help from the Washington-based institution.
After years of living beyond its means, Britain in 1976 secured a USD 3.9 billion (£2.9 billion) loan on the condition of higher taxes and the deepest government spending cuts in its history.
According to telegraph.co.uk on Monday (8/9), Chancellor Rachel Reeves stressed that the 1976 episode would not be repeated, adding that such a scenario was never considered by "serious" economists.
However, Britain's credibility is faltering. The bond market is wary, with 30-year government borrowing costs (gilt yields) at their highest since 1998.
Unlike in 1976, Britain today has full control of its currency. The Bank of England could in theory "print" money to resolve the crisis, though this would make Britons poorer as inflation would inevitably follow.
What exactly is Britain facing now? Why do many analysts draw parallels with 1976: high debt, rising borrowing costs, a weak economy.
Britain's current situation is as follows:
* 30-year gilt yields have climbed to their highest since 1998, reaching 5.75-5.7% before easing slightly. This will raise the cost of future government borrowing.
* Bond auctions remain oversubscribed, showing demand is still strong, signalling panic remains contained.
* Interest payments on debt are projected at £111.2 billion next year -- double the defence budget.
* Public debt is nearing 95% of GDP, putting Britain in a poor position compared with other advanced economies.
* According to the IMF's 2025 Article IV analysis, fiscal space is very limited due to high debt and interest costs. Without revenue increases or spending cuts, Britain's fiscal position is unsustainable.
As cited by telegraph.co.uk, the issue is what happens if Britain's fiscal position proves unsustainable.
Turn to the IMF?
The global financial institution is funded by 191 member states and has a lending capacity of around USD 1 trillion.
At present, IMF bailout programmes total about USD 120 billion, with Argentina the largest recipient (USD 40 billion), followed by Ukraine (USD 10 billion), Egypt and Pakistan.
But strict limits apply to how much can be borrowed. Each country has a quota based on the size of its economy. Britain's quota is about USD 30 billion, far below the US (USD 120 billion) and Japan (USD 43 billion).
Rules allow borrowing up to three times a country's quota. Beyond that, a government must apply for exceptional access, with harsher terms and higher interest. For Britain, three times its quota would mean around £67 billion.
That sum is not significant. It would only cover National Health Service (NHS) funding for four months or state pensions for six months. Meanwhile, the NHS is under pressure:
* Long waiting lists, with patients waiting months for operations.
* Staff shortages, with doctors and nurses often striking over pay that lags living costs.
* Rising financial burden from an ageing population driving up healthcare spending.
* Exploding costs: the biggest line in government spending, larger than defence.
The NHS, Britain's cherished public healthcare service since 1948, has become the largest fiscal drain. Costs are ballooning due to an ageing population, while strikes by medical staff over pay compound the strain.
Meanwhile, the UK government is expected to borrow nearly £120 billion this year to cover the fiscal deficit, not including debt refinancing that is more than twice that amount.
With public debt nearing 95% of GDP, borrowing costs surging, and the NHS weighing heavily on the budget, Britain faces a serious crisis.
This means the government will not be able to meet all its needs without turning again to the IMF -- whose resources fall far short of Britain's actual requirements.
The issue is not unique to Britain. The US is experiencing similar strains: soaring debt (USD 37 trillion), rising government bond yields, mounting borrowing costs and shrinking fiscal space. Hedge fund veteran Ray Dalio has even predicted America will suffer an "economic heart attack" within three years.
The question is: if these two major economies stumble at the same time, can the IMF, with its USD 1 trillion capacity, really withstand the storm? (DK/MT/ZH)