Spendthrift America: IMF warns the US of mounting deficit, recession
Virendra Pandit
New Delhi: Days after the International Monetary Fund (IMF) controversially bailed out a broke Pakistan amid its low-cost war against India, and a day after America announced the development of a Golden Dome worth USD 175 billion to protect itself from China and Russia, the global lender has warned Washington to curb fiscal deficit and fix debt burden.
The IMF also raised the probability of a US recession this year to 40 percent—up from 25 percent in October 2024.
IMF’s First Deputy Managing Director Gita Gopinath warned the United States is running excessively large fiscal deficits and must urgently address its “ever-increasing” debt burden, The Financial Times said on Wednesday.
Her comments came days after Moody’s downgraded the US sovereign credit rating, citing the federal government’s failure to rein in its rising USD 36 trillion debt and persistently large deficits, the media reported.
Gopinath also said the US continues to face “very elevated” uncertainty in trade policy, despite recent positive developments such as the rollback of tariffs on China and the signing of a US-UK economic agreement under President Donald Trump’s administration.
He is currently pushing to extend tax cuts introduced in 2017 and add further tax incentives—moves that Gopinath and other economists suggest could widen the fiscal gap further.
In its April outlook, the IMF cut its US growth forecast to 1.8 percent for 2025, down from 2.7 percent in January 2025. The downgrade reflects trade friction and high borrowing costs, with the fund warning of further downside risks from tariff hikes.
Gopinath said the rise in trade barriers and uncertainty would likely cause a “significant slowdown” in global growth.
“It is absolutely a positive to have lower average tariff rates than the ones we assumed, but there is a very high level of uncertainty, and we have to see what the new rates will be.”
Moody’s downgraded the United States’ sovereign credit rating last week, citing an unsustainable fiscal path. It said successive US administrations and Congress had failed to agree on measures to reverse the trend of large annual deficits and surging interest costs.
The rating agency had maintained a pristine “Aaa” rating for the US since 1919. It is the last of the three major ratings agencies to lower the country’s credit rating.
After this downgrade, China called on the US to adopt responsible fiscal and monetary policies to safeguard international economic stability and protect global investor interests.
Since returning to the White House on January 20, President Trump has pledged to balance the federal budget. Treasury Secretary Scott Bessent has said the administration is focused on reducing borrowing costs.
However, efforts to raise revenue through tariffs have raised fears of a trade war and further economic slowdown. Spending cuts driven by Elon Musk’s Department of Government Efficiency (DOGE) have also fallen short of original targets.
Market participants remain unconvinced by Trump’s fiscal roadmap, pointing to the widening deficit, volatile bond markets and rising recession risks.
