The International Monetary Fund (IMF) has warned in a recent report that huge US fiscal deficits have pumped up inflation and posed “significant risk” to the global economy.
The IMF’s benchmark Fiscal Monitor shows that the fiscal deficit in the United States is projected to reach 7.1 percent of GDP next year, while the average level for other advanced economies is only 2 percent.
Massive spending in the US could have profound implications for the global economy and pose risks to other economies, the report said, urging the US to address the serious imbalance between spending and revenue.
IMF data shows that last year, fiscal deficits in advanced economies such as the eurozone were kept under control, but the US experienced a “considerable fiscal slide,” with the deficit amounting to 8.8 percent of GDP, more than twice the level in 2022.
Earlier this week, IMF chief economist Pierre-Olivier Gourinchas said the US budget stance creates “longer-term fiscal and financial stability risks for the global economy,” while IMF Managing Director Kristalina Georgieva said on Thursday the dollar’s strengthening, driven by high interest rates, is “concerning.”
As borrowing costs in the US are closely linked to global markets, the IMF said that if U.S. interest rates suddenly rise sharply, it will lead to a surge in global government bond yields and currency fluctuations in emerging and developing economies.
This global spillover effect of interest rates could tighten financial conditions, increasing risks faced by other countries, the fund said.
It said the US was among four countries that “critically need to take policy action to address fundamental imbalances between spending and revenues.”
