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IMF urges U.S. to reduce high fiscal deficit, put debt on downward trajectory

WASHINGTON, July 11 (Xinhua) — The International Monetary Fund (IMF) on Thursday urged the U.S. government to reduce its high fiscal deficit and to put debt on a downward trajectory, reiterating the organization’s suggestion following the completion of the IMF staff’s recent 2024 Article IV Mission to the country.

“Action is needed by the United States to reduce its high fiscal deficit and to put debt on a downward trajectory. I should say that we have been highlighting these concerns for quite some time,” IMF spokesperson Julie Kozack said at a press briefing.

Kozack noted that in 2021 and 2022, the United States passed significant fiscal legislation, which is expected to have a lasting positive impact on reshaping the U.S. economy. At the same time, the fiscal deficit is now too high.

“It is the time now especially that the economy is strong to take action to put debt to GDP (ratio) on a decisive downward path,” she said.

The IMF spokesperson also noted that in fiscal year 2023, net interest payments of the U.S. federal government amounted to 2.4 percent of GDP, whereas they are expected to rise to 3.2 percent of GDP in the current fiscal year 2024, primarily due to higher interest rates.

“Looking even further ahead, our estimate is that net interest payments are expected to remain elevated even in the medium term. And that is on the basis of high primary fiscal deficits and the resulting public debt,” Kozack said in response to a question from Xinhua.

“And it’s for this reason as well that we are calling for an action to be taken to reduce the U.S. deficit and debt at this time,” she noted.

The benchmark interest rate in the United States has remained at a 22-year-high range of 5.25 percent to 5.5 percent, approved by the U.S. Federal Reserve in July of last year. Due to setbacks in inflation progress earlier this year, the Fed is expected to cut rates later than previously expected, increasing the burden on the U.S. deficit and debt.

The Fed’s next meeting is scheduled on July 30-31. The Chicago Mercantile Exchange (CME) Group’s FedWatch Tool, which acts as a barometer for the market’s expectation of the Fed funds target rate, showed that the probability of the Fed maintaining rates at the July meeting is over 95 percent as of Thursday. The probability of a rate cut at the September meeting is 66 percent.

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