The United States has been called upon by Gita Gopinath, first deputy managing director of the International Monetary Fund (IMF), to curb its escalated fiscal deficit, as the robust American economy provides the flexibility to control expenses and enhance taxation. Gopinath asserts that economies in a stable state should address their strategies for reducing debt to pre-pandemic figures.
Gopinath’s urging comes amidst apprehensions from economists and investors over the prospective influence of prolonged fiscal indiscipline by both Republican and Democrat administrations on the American economy.
The Congressional Budget Office, a federal financial oversight body, has predicted that the debt-to-GDP ratio of the country will surge to a record established in the post-World War II period by 2029, if the Congress continues with its existing economic policies. They have also projected deficits to range between 5.2% and 6.3% over the upcoming decade.
The IMF warned in its Fiscal Monitor report, released in April, of anticipated US fiscal deficits of approximately 7.1% in the forthcoming year- over threefold the average of 2% observed in other developed economies. Risks to the global economy arising from fiscal deficits in China and the US were also highlighted in this report.
The recently introduced fiscal reforms in the eurozone received commendation from Gopinath. However, she emphasized the cruciality of proper execution of these strategies, ratified in December.
2025 is seen as a critical year for the fiscal future of the US, with future increases in deficits stirring apprehensions, on account of Donald Trump’s commitment to uphold his tax reductions of 2017 if he returns to power, and Joe Biden’s inability to regulate high spending.
The annual evaluation of the US economy conducted by the IMF, referred to as Article IV consultation, is scheduled for publication later in the month.
According to Ms Gopinath, developed nations can’t avoid the necessity for substantial reforms in pensions systems as well as medical costs in view of ageing populations. These amendments are essential, she iterated. While the Biden government has grappled with decreasing healthcare and social care expenditure, the International Monetary Fund seemingly supports their attempts to prompt wealthier Americans to contribute more in taxes. Ms Gopinath expressed her view that several nations have valid reasons for propelling progressive taxes, suggesting stronger implementation of both capital gains tax and inheritance tax.
She also voiced a cautionary note that adopting generative artificial intelligence could potentially heighten the impact of an upcoming economic turndown, despite the fact that it might increase productivity and stimulate growth. As per IMF research, this technology may imperil 30% of jobs in developed countries, 20% in developing markets, and 18% in nations with lower income.
Ms Gopinath encourages nations to reconsider how they can support workers whose jobs get disrupted by technological advancements. She suggested that some countries could potentially enhance unemployment benefits. In addition, she proposed the introduction of wage insurance to bridge the difference between an employee’s previous and new wages.