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The second-in-command of the International Monetary Fund has urged the United States to reduce its mounting fiscal burden, saying strong growth in the world’s largest economy has given it „more” room to rein in spending and raise taxes.
Geeta Gopinath, the fund’s first deputy managing director, said it was time for advanced economies to „invest in fiscal consolidation” and how they planned to bring debt burdens back to pre-pandemic levels.
„For the US, we see sufficient ground for them to reduce the size of their fiscal deficit, given the strength of the US economy,” he told the Financial Times.
The warnings come as economists and investors fear that years of financial fraud by Democrats and Republicans are storing trouble in the US economy.
The Congressional Budget Office, the federal government’s fiscal watchdog, expects debt-to-GDP to rise in 2029 from its pre-World War II peak. It forecasts a deficit of 5.2 percent to 6.3 percent over the next 10 years. Economic plans will remain the same.
„The desire to finance all expenditure by borrowing is really something that countries should avoid,” Gopinath said.
The IMF, in its benchmark Fiscal Monitor released in April, expects the United States to post a fiscal deficit of 7.1 percent next year — more than three times the average for other advanced economies. It warned that fiscal deficits in both the US and China pose „significant risks” to the global economy.
Gopinath praised the euro area’s recent fiscal reforms, however he implemented them activitiesIt admitted in December that it would be „absolutely critical”.
Many see 2025 as a crunch year for America’s fiscal outlook, with Donald Trump pledging to make the 2017 tax cuts permanent if re-elected and Joe Biden’s failure to rein in excessive spending raising concerns that deficits could balloon even higher than they already are. expected.
The IMF’s annual review of the US economy, known as the Article IV Consultation, is due out later this month.
Gopinath said there is „no way around” the fact that all advanced economies need fundamental reforms in pension systems and healthcare spending as the population ages.
„That will be important,” he added.
Even as the Biden administration struggles to rein in spending on health and social security, Gopinath implied the IMF supports the White House’s efforts to make wealthy Americans pay higher taxes.
„We see reasons for more progressive taxation in many countries,” he said, adding that capital gains and inheritance taxes could be implemented more effectively.
While it could boost productivity and boost growth, developing AI „could exacerbate the next economic downturn,” warned Gopinath.
IMF research has found that technology threatens 30 percent of jobs in advanced economies, 20 percent in emerging markets and 18 percent in low-income countries.
Gopinath said countries should rethink how they support workers in technology-displaced jobs.
„We think the generosity of unemployment insurance will be greater in some countries,” he said, adding that wage insurance could also work to cover the gap between workers’ old and new salaries.