Home Economy News IMF’s Gopinath says high U.S. deficits fueling growth, higher interest rates

IMF’s Gopinath says high U.S. deficits fueling growth, higher interest rates


By David Lawder

WASHINGTON (Reuters) -The United States needs to raise revenues to bring down high budget deficits even though they are helping to fuel global growth by stoking domestic U.S. demand, International Monetary Fund First Deputy Managing Director Gita Gopinath said on Saturday.

Gopinath told a fiscal forum at the IMF and World Bank spring meetings that U.S. deficits are projected to rise for years with one of the world’s steepest curves for debt.

“The high levels of deficits are also supporting growth and demand in the U.S. that have positive spillover to the rest of the world,” Gopinath said. “But along with that growth, you’re getting higher interest rates and a stronger dollar and the second two are creating more complications for the world.”

The IMF’s fiscal monitor estimates that the U.S. deficit for 2024 will reach 6.67% of GDP, rising to 7.06% in 2025 – double the 3.5% in 2015.

Gopinath said that the IMF’s annual “Article IV” review of U.S. economic policies in coming weeks will again recommend that the U.S. raise tax revenues and reform its costly Social Security and Medicare programs for older Americans to bring down deficits.

The review will largely repeat its U.S. policy prescriptions from last year, when the U.S. Congress was in the throes of a standoff over raising the federal debt ceiling, which threatened a potential default that would have roiled global financial markets.

Gopinath said the IMF would again recommend that the U.S. find a way to approve government funding without debt ceiling brinkmanship.

“It is certainly a risk nobody needs to have to deal with,” Gopinath said. “This happens every year. There has to be a way to resolve this brinkmanship.”

Asked about the prospects for a widespread debt crisis in developing countries, Gopinath said: “We don’t see a systemic debt crisis happening any time soon.”

Although there are still a number of low-income countries that are facing debt distress, she said financial market conditions have improved somewhat, with some frontier market countries recently returning to markets to borrow.

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