Updated April 21st, 2024 at 13:00 IST

IMF urges US to address budget deficits amid global growth

While the deficits support US growth and have positive effects on the global economy, they also result in higher interest rates.

Reported by: Business Desk
IMF | Image:Shutterstock
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IMF budget deficits: The International Monetary Fund's First Deputy Managing Director, Gita Gopinath, emphasised the need for the United States to raise revenues to reduce high budget deficits, despite these deficits contributing to global growth by boosting domestic US demand. Gopinath highlighted that US deficits are expected to increase over the coming years, leading to significant debt accumulation.

While these deficits support US growth and have positive effects on the global economy, they also result in higher interest rates and a stronger dollar, creating complexities for the world economy. The IMF's fiscal monitor estimates that the US deficit for 2024 will reach 6.67 per cent of GDP, doubling the 3.5 per cent recorded in 2015.

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Gopinath stated that the IMF will recommend in its upcoming "Article IV" review of economic policies that the US government raise tax revenues and reform Social Security and Medicare programs for older Americans to address the deficits. This recommendation aligns with previous suggestions made by the IMF.

Regarding the potential for a widespread debt crisis in developing countries, Gopinath expressed that while some low-income countries are facing debt distress, there is no imminent systemic debt crisis expected. She noted that financial market conditions have improved, with some frontier market countries successfully returning to borrowing in recent times.

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(with Reuters inputs)

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Published April 21st, 2024 at 13:00 IST