US Debt Piles and Budget Deficit Pose Risks to the Global Economy

JAKARTA – The International Monetary Fund (IMF) issued a warning to the United States (US) over its growing budget deficit and soaring debt, which poses increasing risks to the global economy.

Data shows that the US national debt is increasing, approaching USD 35 trillion (around IDR 560,000 trillion, exchange rate IDR 16,000/USD). Meanwhile, according to the latest IMF figures, the US federal budget deficit jumped from USD 1.4 trillion in the 2022 fiscal year to USD 1.7 trillion (around IDR 27,000 trillion) last year.

The Congressional Budget Office, the official fiscal watchdog in the US, estimated earlier this month that the deficit would likely reach $1.9 trillion this year, or about 7% of US gross domestic product (GDP).

“High deficits and debt create increasing risks to the US and global economies, potentially adding to higher fiscal financing costs and increasing risks to the smooth rollover of maturing obligations,” the IMF said in its statement on the “Article IV” review of US economic policy, as reported by Russia Today, Saturday (6/29/2024).

The IMF added that this chronic fiscal deficit shows significant and persistent policy misalignment that needs to be addressed immediately. America exceeded its debt ceiling, legally set at $31.4 trillion, in January 2023.

After months of warnings of a possible default from the US Treasury Department, President Joe Biden signed a debt bill in June 2023 that suspended the limit until January 2025.

This effectively allows the government to continue borrowing indefinitely into next year. The debt soared to $32 trillion less than two weeks after the bill was approved, and has continued to balloon since then.

The IMF also sharply criticized Washington’s increasingly aggressive trade policies. Referring to rising tensions with China, the IMF said that continued expansion of trade restrictions and lack of progress in addressing vulnerabilities caused by bank failures in 2023 could undermine financial stability worldwide.

The IMF statement is just the latest warning about U.S. overspending. On Tuesday, the Organization for Economic Cooperation and Development (OECD) said the U.S. debt-to-GDP ratio was at its highest since World War II.

The debt-to-GDP ratio is a metric used to measure a country’s ability to pay its debts. Last year, Uncle Sam’s debt soared to 122% of GDP, according to the OECD.

(fjo)