IMF Predicts US Fiscal Deficit to Shrink in 2025 Due to Tariffs

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The United States incurred a $1.8 trillion national deficit in fiscal year 2024, the largest this century except for in 2020 and 2021.

The Trump administration’s tariff policies are expected to bring down the fiscal deficit of the United States this year, the International Monetary Fund (IMF) said in an April 23 report.

Fiscal deficit, also known as national deficit, occurs when a country’s government spends more money than it earns during a fiscal year.

The general government fiscal deficit of the United States in 2024 was 7.3 percent of GDP, which is expected to fall to 6.5 percent in 2025, the IMF said, adding that the “magnitude of the tariff revenue increase is highly uncertain.”

The prediction is contingent on the United States’ benefiting from higher tariff revenues. As such, the current 90-day pause on reciprocal tariffs announced on April 2 and other measures could result in “lower import revenues.”

“Without significant policy changes, the deficit is projected to drop to 5.6 percent of GDP in the medium term, fueled by a 0.7 percentage point rise in revenues,” the report states.

On the negative side, the IMF said high tariffs can dampen U.S. economic activity, impact income taxes, and likely offset some of the revenue gains from the tariff policy.

Moreover, rising debt would add more pressure on long-term interest rates and government financing costs, affecting the fiscal deficit as well.

“Elevated uncertainty and significant policy shifts are reshaping economic and fiscal outlooks. Major tariff announcements by the United States, countermeasures by other countries, and exceptionally high levels of policy uncertainty are contributing to worsening prospects and heightened risks,” the report said.

According to the Fiscal Data website run by the U.S. Treasury, the United States incurred a deficit of $1.83 trillion in fiscal year (FY) 2024.

This was the highest fiscal deficit since 2000, after exempting the pandemic-era deficits of $3.13 trillion in 2020 and $2.77 trillion in 2021.

The deficit has already reached $1.3 trillion for fiscal year 2025, which runs from Oct. 1, 2024, to Sept. 30, 2025.

“Since 2001, the federal government’s budget has run a deficit each year. Starting in 2016, increases in spending on Social Security, health care, and interest on federal debt have outpaced the growth of federal revenue,” the website states.

“From FY 2019 to FY 2021, federal spending increased by about 50 percent in response to the COVID-19 pandemic.”

By Naveen Athrappully

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