IMF Criticizes Economic Policies, Warns U.S. of Fiscal Deficit

The International Monetary Fund (IMF) has pointed out that the trade restrictions implemented by the United States to counter China are having negative effects on both the U.S. and global economies. The IMF is increasingly criticizing U.S. economic policies.

On June 27, the IMF made this announcement in a statement following their annual consultation with the U.S.

Regarding U.S. trade policy, the IMF said, “The U.S. should actively engage with key trading partners to address core issues that risk weakening the international trade and investment system.” The IMF added, “These issues include unfair trade practices, supply chain vulnerabilities, and national security concerns.”

Furthermore, the IMF diagnosed that policies such as tariffs, non-tariff barriers, and the use of U.S.-made materials distort trade and investment flows. This is not beneficial for U.S. economic growth and is not the right solution, according to the IMF.

The IMF also evaluated the U.S. economy as being in better condition than expected. The IMF forecasted that the U.S. economy would grow by 2.6% this year, which is similar to the 2.7% projection made in April.

However, the IMF stated, “The U.S. fiscal deficit is too large that it is causing a continuous increase in the ratio of public debt to Gross Domestic Product (GDP).”

The IMF explained that “the continued expansion of trade restrictions and the lack of progress in resolving vulnerabilities highlighted by last year’s bank failure are downside risks to the U.S. economy.”

Regarding this, the U.S. Congressional Budget Office (CBO) estimated the size of the U.S. fiscal deficit for the 2024 fiscal year to be $1.9 trillion. This is a 27% increase from the forecast made in February. The CBO predicted that the U.S. fiscal deficit will increase to 6.7% of GDP this year. Over the past 50 years, the average U.S. fiscal deficit as a percentage of GDP has been 3.7%.

The IMF diagnosed, “There is a need to reverse the continuous increase in the ratio of public debt to GDP.” The chronic fiscal deficit of the U.S. is cited as a significant and ongoing policy error that urgently needs to be addressed.

IMF Managing Director Kristalina Georgieva predicted at a press conference that “U.S. inflation will decrease to the Federal Reserve (Fed)’s target level of 2% by mid-next year.”