The International Monetary Fund (IMF) has raised concerns about overspending by the US government, warning it has been reigniting inflation risks and undermining financial stability around the world.
The US federal budget deficit jumped from $1.4 trillion in fiscal 2022 to $1.7 trillion last year, according to the latest World Economic Outlook, issued by the IMF on Tuesday.
“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth,” the IMF said. However, the report explained that this “reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability.”
The ballooning US national debt, which exceeded $34 trillion in December, and the fiscal deficit threatened to exacerbate sky-high levels of inflation while posing a long-term risk to the global economy, according to the report.
“Something will have to give,” the IMF warned.
The US exceeded its debt ceiling, which was legally set at $31.4 trillion, in January 2023. After months of warnings of an imminent and economically disastrous default from the US Treasury, President Joe Biden in June 2023 signed a bipartisan debt bill that suspended the cap until January 2025. This effectively allowed the government to keep borrowing without limits through next year. Debt spiked to $32 trillion less than two weeks after the bill was approved, and has been piling up ever since.
The debt held by the public could surge by $19 trillion over the next decade to surpass the $54 trillion mark, owing to the mounting costs of an aging population and higher interest expenses, according to recent projections by the Congressional Budget Office (CBO).
Since entering office, Biden has spent trillions on Covid relief as well as on infrastructure. The US has also spent billions on aid for Ukraine. The Biden administration, however, has been insisting that tax cuts signed into law by then-President Donald Trump were to blame for the ballooning national debt.
Last month, Biden unveiled a $7.3-trillion budget plan for 2025 which would push US debt over 100% of GDP, as he laid out a fiscal agenda that boosts spending but plans to save $3 trillion through higher taxes over ten years.
Republicans in the House of Representatives have described the proposed budget as a “roadmap to accelerate America’s decline,” accusing the Biden administration of “reckless spending” and of engaging in a “runaway spending spree” that disregards fiscal responsibility.