The International Monetary Fund (IMF) said that U.S. economic growth alone cannot quickly address the country’s rising debt and fiscal deficit, and additional measures are needed.
“Authorities are heavily relying on strong U.S. economic growth,” IMF Managing Director Kristalina Georgieva said Wednesday at the IMF annual meeting in Bangkok. “Growth is certainly helpful, but it cannot bring about the necessary adjustments fast enough. Some additional measures are required.”
U.S. Treasury Secretary Scott Biden has recently argued that the United States can alter its debt and deficit trajectory by depending on robust economic growth.
Last week, Biden stated, “What matters is the debt-to-GDP ratio, and we will begin to reverse this trend and reduce it. This could happen soon.” He added that maintaining GDP growth above 3%—a target set for the previous quarter—would help achieve this goal.
Biden did not attend this week’s IMF meetings.
The U.S. debt trajectory is heading toward unprecedented levels. The Congressional Budget Office warned in February that by 2030, the debt-to-GDP ratio would surpass the post-World War II record of 106%.
According to the CBO, the U.S. federal budget deficit has reached $2 trillion and is expected to exceed 6% of GDP this fiscal year. Total U.S. public debt has crossed $40 trillion for the first time, increasing by one-third in less than five years.
Citi forecasts that Biden may cut the amount of long-term Treasury auctions by $3 billion per issuance and offset the gap by issuing more short-term debt. However, BNP Paribas warns that restricting long-term bond supply could backfire.
With limited buyers for long-term Treasuries and major holders such as China, Japan, and the UK continuing to reduce their holdings, simply reducing supply won’t attract new investors.
