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IMF warns US must ‘urgently’ tackle debt burden

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The IMF has urged the United States to “urgently” tackle its growing fiscal burden, as it attacked the tax plans of both presidential candidates just hours before their first election debate.

The fund said projects from its annual Article IV health check of the U.S. economy showed the debt-to-GDP ratio would reach 140 percent by 2032, well above its current level of 120.7 percent.

This surge, following successive budget deficits projected in the years to come, would leave the debt burden surpassing previous peaks in the aftermath of World War II.

“Such high deficits and debts create increasing risk for the U.S. and global economies, which could translate into higher fiscal financing costs and increasing risk to the smooth rollover of maturing bonds,” he said. declared the IMF in its Article IV consultation. “These chronic budget deficits represent a significant and persistent political misalignment that must be urgently addressed. »

The IMF’s warnings come after the Congressional Budget Office, the official U.S. fiscal watchdog, predicted earlier this month that the deficit is likely to reach $1.9 trillion this year, or about 7% of GDP, up from an estimate of $1.5 trillion in February.

Economists and investors are growing increasingly concerned that neither U.S. President Joe Biden nor his Republican rival Donald Trump are willing to do enough to rein in rampant spending. The two men are expected to meet Thursday evening in Atlanta for the first debate of the current election cycle.

The fund said both candidates should “carefully consider” a series of tax increases – including on the income of those earning less than $400,000 a year, which Biden has promised not to pay more taxes if he gets a second term in the White House.

Trump’s tax plans, which include perpetuating a series of cuts he introduced in 2017, are expected to add between $4 trillion and $5 trillion to the U.S. deficit over the next decade.

IMF Managing Director Kristalina Georgieva said strong growth in the United States meant the country had the space to deal with its fiscal burden.

“There is a temptation to postpone decisions related to debt and deficits until the future, rather than paying them when the sun is shining and conditions are good,” she said at a news conference on Thursday, adding that it was the fund’s role to be the “voice of reason” on the subject.

Although Georgieva said Thursday that the fund does not support the Biden administration’s tariffs on Chinese green technology products, nor Trump’s plans to impose a blanket 10% levy on all imports, she acknowledged that there were political arguments in favor of such actions.

“Decades of globalization have led to generally positive results,” Georgieva told reporters. “But there have been negative consequences for some communities, including here in the United States, with jobs disappearing due to cheap imports from other countries.”

She added that opposition to free trade from Americans and Europeans showed “genuine concern” that “must be taken seriously.”

News Source : www.ft.com
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