US deficit presents ‘significant risks’ to global economy: IMF

The IMF said in a recent report that the soaring US deficit rate could pose “significant risks” to the global economy, as it is creating more inflationary pressure.

Experts said that the US has to maintain the US dollar’s current dominance in the global market amid competition with China by maintaining a high deficit rate.

According to the latest Fiscal Monitor published by the IMF on April 17, the US’ fiscal deficit is expected to reach 7.1 percent in 2025, much higher than the 2 percent average for other advanced economies.

The huge spending of the US could “have profound effects on the global economy and pose significant risks for baseline fiscal projections in other economies,” said the report, noting that the US should move to balance income and spending.

The IMF’s data showed that fiscal deficits in other advanced economies such as the eurozone were curbed in 2023, but the US “experienced remarkably large fiscal slippages,” with the general government fiscal deficit rising to 8.8 percent of GDP from 4.1 percent of GDP in 2022.

On January 3 this year, the US government’s debt topped $34 trillion for the first time, barely three months after the debt first hit $33 trillion.

The US has had to raise interest rates to strengthen the dollar and ensure capital inflows to the US instead of to China, which has an inflationary effect, Hu Qimu, deputy secretary-general of the digital-real economies integration Forum 50, told the Global Times on Sunday.

“The US government has to follow an eased monetary policy to offer subsidies to factories and to support people’s wages,” Hu said, adding that this is unsustainable.

As 2024 marks an election year in the US, the IMF has called on governments to avoid slippages and focus more on rebuilding buffers and safeguarding fiscal sustainability over the medium term.

Hu added that the administration of President Joe Biden is unlikely to cut the interest rate in an election year, as it may be seen as a compromise to China by voters.