IMF issues warning on U.S. debt issue: poses increasingly serious risks to U.S. and global economic stability

The International Monetary Fund (IMF) warned on Wednesday that U.S. national debt will rise to 140% of GDP within the next five years and urged the U.S. government to reduce the fiscal deficit to curb excessive trade deficits and current account deficits.

Data shows that U.S. national debt has swollen to over $38 trillion, with the fiscal gap still widening. Over the past year, debt increased by $2.25 trillion, and it is expected to surpass $39 trillion by April. According to the IMF’s latest data, the U.S. federal budget deficit has risen from about $1.4 trillion in fiscal year 2022 to approximately $1.8 trillion last year.

After completing its annual review of U.S. economic policies, IMF Managing Director Kristalina Georgieva told reporters, “Simply put, the current account deficit is too large.” She noted that the U.S. government is aware of this issue.

In its latest “Article IV Consultation” report, the IMF forecasts that, under current policies, U.S. public debt will reach 140% of GDP by 2031. Meanwhile, rising short-term debt and increasing debt-to-GDP ratio pose growing risks to U.S. and global economic stability. The IMF stated that the U.S. government needs to develop a clear fiscal adjustment plan to put debt on a sustainable downward path.

The IMF also urged the U.S. to engage in constructive cooperation with trade partners, “address concerns about unfair trade practices, and reach agreements on coordinated reductions of trade restrictions and distortions in industrial policies, as these measures have negative cross-border impacts.”

The IMF pointed out, “Trade and investment measures taken for national security reasons (including tariffs and export controls) should be used cautiously and strictly limited in scope.”

Data indicates that the U.S. economy will still grow resiliently at 2.4% in 2026, but amid uncertainties in inflation and growth prospects, inflation is expected to fall back to the Federal Reserve’s 2% target by early 2027.

The IMF noted that the U.S. fiscal deficit will remain between 7% and 8% of GDP in the coming years, more than double the target set by U.S. Treasury Secretary Janet Yellen.

The IMF report was drafted before the U.S. Supreme Court invalidated several of President Trump’s tariffs. The IMF said it will assess the impact of that ruling.

After the Supreme Court declared Trump’s broad tariff measures illegal, the U.S. government invoked Section 122 of the Trade Act of 1974 to implement alternative tariffs aimed at improving the balance of payments.

However, Nigel Chalk, head of the IMF’s Western Hemisphere Department, stated that the best way to reduce the current account deficit is to cut the U.S. fiscal deficit.

U.S. public debt is mainly used to cover budget deficits and finance projects in healthcare, defense, and infrastructure, and has long been regarded as a “safe asset” globally. U.S. Treasury yields provide benchmark rates for the global market and help attract foreign capital inflows. However, the rising debt level could push up borrowing costs and inflation pressures, threatening U.S. and global economic stability.

(Source: Caixin Global)