IMF warns US to address debts

The International Monetary Fund (IMF) has called on the United States to urgently address its growing fiscal challenges, critiquing the tax proposals of both presidential candidates just before their first electoral debate.

In its annual Article IV assessment of the US economy, the IMF projected that the debt-to-GDP ratio could reach 140 percent by 2032, significantly higher than the current 120.7 percent. This increase is attributed to anticipated fiscal deficits, potentially exceeding post-World War II levels.

"Such high deficits and debt pose increasing risks to both the US and global economy, potentially leading to higher fiscal financing costs and challenges in managing maturing obligations," the IMF stated in its Article IV report. "These chronic fiscal deficits represent a substantial and ongoing policy misalignment that requires urgent attention."

The IMF's warnings follow a Congressional Budget Office forecast predicting a deficit of $1.9 trillion this year, or about 7 percent of GDP, up from a February estimate of $1.5 trillion.

Concerns are mounting among economists and investors that neither President Joe Biden nor his Republican contender Donald Trump have sufficient plans to curb excessive spending. The two candidates are scheduled to debate in Atlanta on Thursday evening.

The IMF suggested that both candidates should "carefully consider" various tax increases, including those affecting incomes under $400,000 annually, despite Biden's pledge not to raise taxes on this group if re-elected. Trump's tax proposals, which aim to make his 2017 tax cuts permanent, are expected to add between $4 trillion and $5 trillion to the US deficit over the next decade.

IMF Managing Director Kristalina Georgieva emphasized that the robust growth of the US economy provided an opportunity to address fiscal issues. "There is a temptation to delay decisions regarding debt and deficits, but it's crucial to tackle them when economic conditions are favorable," she said at a press conference on Thursday. Georgieva noted that it is the IMF's role to act as the "voice of reason" on such matters.

While Georgieva did not endorse the Biden administration’s tariffs on Chinese green tech products or Trump's proposal for a 10 percent levy on all imports, she acknowledged the political rationale behind these measures. "Decades of globalization have generally yielded positive outcomes, but some communities, including those in the US, have suffered due to job losses from cheap imports," Georgieva told reporters. She stressed that the concerns of those impacted by free trade should be taken seriously.