‘Something will have to give,’ the IMF warned of high deficit spending and the risk that it could spiral further out of control in an election year.
The International Monetary Fund (IMF) has sounded the alarm on the Biden administration’s high deficit spending, warning that its fiscal stance and ballooning public debt threaten to stoke inflation and possibly even spark financial chaos.
“The fiscal stance, out of line with long-term fiscal sustainability, is of particular concern,” IMF economists wrote in a recent blog post, which accompanied the release of the group’s latest editions of the its Fiscal Monitor and its World Economic Outlook Report, which both warn of acute risks to public finances in an election year in which much of the political discourse is loudly in favor of fiscal expansion.
Deficit spending in the United States last year hit $1.7 trillion in 2023, or 6.3 percent of gross domestic product (GDP), according to a recent report from the Congressional Budget Office (CBO), which warned that deficit spending that adds to a growing pile of public debt would slow economic growth and drive up interest payments to foreign holders of U.S. debt.
Over the next 30 years, U.S. deficit spending is expected to grow to 8.5 percent of GDP by 2054, per CBO estimates. The agency also projects that the total public debt-to-GDP ratio, which in the 1980s was around 35 percent of GDP, will balloon to 166 percent by 2054, posing “significant risks” to America’s fiscal and economic outlook.
Treasury Department data released earlier in April show that the U.S. budget deficit topped $1 trillion in the first six months of fiscal year 2024, putting the federal government on track to notch its fifth consecutive trillion-dollar-plus budget gap.
Republicans have repeatedly expressed opposition to high deficit spending, while President Joe Biden has called out the GOP for pushing budget cuts and tried to pin the blame for catapulting the public debt to over $34 trillion on President Donald Trump’s tax cuts.
By Tom Ozimek
