Wartime shortages
The fund said its annual review of the U.S. economy projects that the debt-to-GDP ratio will reach 140 percent by 2032, much higher than the current level of 120.7 percent.
Such a sharp increase, driven by continued projected budget deficits in the coming years, would push the debt burden beyond previous highs reached after World War II.
“Such high deficits and debt pose growing risks to both the U.S. and global economies, potentially leading to higher fiscal financing costs and a growing risk of rollover,” the IMF said. “These chronic fiscal deficits represent a significant and persistent policy imbalance that urgently needs to be addressed.”
The IMF’s warnings came after the Congressional Budget Office, the official body that oversees the budget, earlier this month predicted that the budget deficit would likely reach $1.9 trillion this year, or about 7 percent of GDP, up from a February estimate of $1.5 trillion.
Wherever you throw it, there’s a wedge everywhere
Economists and investors are increasingly concerned that neither US President Joe Biden nor his Republican rival Donald Trump are willing to do enough to rein in runaway spending as they meet in Atlanta on Thursday night for the first debate of the election cycle.
The IMF said both candidates needed to “carefully consider” a range of tax increases, including on incomes of those earning less than $400,000 a year. But Biden has promised that Americans will not pay more in taxes if he is elected to a second term in the White House.
The U.S. fiscal outlook is no better if Trump is elected. Trump’s tax plans, which include permanently reversing some of the cuts he enacted in 2017, are expected to increase the U.S. budget deficit by between $4 trillion and $5 trillion over the next decade.
When the sun shines over Washington
IMF Managing Director Kristalina Georgieva said the US economy’s strong growth meant the country had room to address its fiscal burden.
“There is a temptation to put off debt and deficit decisions for the future rather than pay them when the sun is shining and conditions are good,” she said at a news conference on Thursday, adding that the fund’s role is to be a “voice of reason” on the issue.
While Georgieva said the fund does not support the Biden administration’s tariffs on Chinese “green technology” products or Trump’s plans to impose a general 10 percent tax on all imports, she acknowledged there are political reasons for such actions.
“Decades of globalization have had generally positive results,” Georgieva told reporters. “But for some communities, including in the United States, it has had negative consequences: jobs have disappeared because of cheap imports from other countries.”
She added that opposition to free trade from people in the US and Europe reflects “genuine concerns” that “need to be taken seriously.”
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2024-07-02 13:58:39