WASHINGTON: U.S. fiscal deficits are too large and the country needs to tackle its “ever-increasing” debt burden, said International Monetary Fund (IMF) First Deputy Managing Director Gita Gopinath, according to an interview published by the Financial Times (FT) on Wednesday.
Gopinath told the FT that the U.S. was still impacted by “very elevated” trade policy uncertainty despite positive developments such as U.S. President Donald Trump’s administration rolling back tariffs on China and striking a U.S.-U.K. economic deal.
In April, the IMF slashed its U.S. growth forecast along with most other countries over the impact of U.S. tariffs, while warning that further trade tensions would slow growth further.
“It is absolutely positive to have lower average tariff rates than the ones we assumed in … but there is a very high level of uncertainty, and we have to see what the new rates will be,” Gopinath told the FT.
The comments came as Trump is proposing to extend tax cuts passed in his first term in 2017 and to add new tax breaks, which some estimates say will contribute to the deficit.
Moody’s also downgraded the U.S. sovereign credit rating last week due to concerns about the nation’s growing $36 trillion debt pile.
The ratings agency cited the failure of successive U.S. administrations and Congress to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.
U.S. Treasury Secretary Scott Bessent dismissed the change in rating and said on Sunday that the Moody’s downgrade was “a lagging indicator,” blaming the fiscal situation on the Biden administration. He added that the administration was “determined to bring the spending down and grow the economy.”
But Gopinath noted that U.S. debt-to-GDP “is ever-increasing,” adding: “It should be that we have fiscal policy in the U.S. that is consistent with bringing debt to GDP down over time.”
The federal government debt held by the public amounted to 98% of gross domestic product (GDP) in fiscal 2024, compared with 73% a decade earlier, according to the Congressional Budget Office.
Courtesy: Dailysabah
