By Brett Rowland (The Central Square)
The International Monetary Fund has warned the United States that government spending and rising national debt are not sustainable and could harm the global economy.
The Washington, D.C.-based group, which represents 190 member countries, also called the U.S. economy “overheated.” The debt warning follows several other high-profile calls to address growing U.S. debt.
“In a context of rising debt, now is the time to restore the sustainability of public finances,” according to the latest IMF Fiscal Monitor report.
In his latest World economic prospectsThe IMF has warned that US debt and national deficits could push inflation levels higher.
“The United States’ exceptional recent performance is certainly impressive and an important driver of global growth, but it also reflects strong demand factors, including a fiscal position that is not aligned with long-term fiscal sustainability,” according to the report. “This increases short-term risks to the disinflation process, as well as long-term fiscal and financial stability risks to the global economy as it risks increasing global borrowing costs. Something has to give.”
In a blog post, IMF chief economist Pierre-Olivier Gourinchas said the United States needs to take a phased approach.
“The United States’ strong recent performance reflects solid productivity and employment growth, but also strong demand in an economy that remains overheated,” he wrote. “This requires a cautious and gradual approach to easing by the Federal Reserve.”
David Walker, former Comptroller General of the United States and member of the Main Street Economics Advisory Board, said Congress must act.
“The International Monetary Fund is the latest independent entity to express concern about the U.S. federal government’s excessive spending practices and failure to take steps to restore long-term financial stability,” he said. “Despite this, our federal elected representatives continue to turn a blind eye to soaring national debt and federal financial mismanagement. As Americans, We the People must engage with our representatives in Congress and ask them to take steps to restore healthcare and federal fiscal sustainability.”
Similar warnings about American debt have come from both inside and outside the government.
In November 2023, Moody’s Investors Service granted the federal government a negative credit outlookciting large deficits, high interest rates and declining political interest in addressing the nation’s deficit. The other two ratings agencies, S&P Global and Fitch, rate US credit AA+. In August 2023, Fitch Ratings decided downgrade the government’s credit rating from the highest level of AAA to AA+. Fitch highlighted the US government’s high national debt and deficit and an “erosion of governance.”
In February, a congressional watchdog told President Joe Biden and Congress that the federal government is on an “unsustainable long-term fiscal path.”
THE relationship of the US Government Accountability Office highlighted the challenges. And a Congressional Budget Office report in February found that federal spending is expected to remain unsustainable for decades to come.
“The federal government faces an unsustainable long-term fiscal path,” according to the U.S. Government Accountability Office report. “We expect debt held by the public as a share of the economy will more than double over the next 30 years and grow faster than the economy in the long term if current revenue and spending policies are not changed.”
Syndicated with permission from The Center Square.
