The United States leads the world in an unfortunate category: the pace of growth in its debt. That’s according to a new International Monetary Fund (IMF) report, which highlights the fact that only four developed nations are experiencing growing debt as a share of gross domestic product (GDP) — but none with debt growing as fast as the United States.
The report shows that the United States’ debt is projected to grow by nearly 11 percentage points of GDP in the next five years. Japan, Korea, and Italy also have debt growing faster than their economies, but at slower rates than that of the United States.
The IMF projects that global economic growth will pick up slightly in the second half of 2019 and continue through 2020, but growth in the United States “is expected to decline to 2.3 percent in 2019 and soften further to 1.9 percent in 2020 with the unwinding of fiscal stimulus.” In other words, the boost to economic growth in the U.S. from the tax cuts and increased spending enacted in late 2017 is expected to begin diminishing this year and weaken further in the next. The Congressional Budget Office (CBO) projects future deficits will soon exceed $1 trillion annually in the United States and would continue rising in the future.
The report stresses the importance of implementing “fiscal policies to manage tradeoffs between supporting demand and making sure that public debt stays on a sustainable path” in order to combat an economic downturn. High-debt countries like the United States would therefore do well to introduce gradual fiscal adjustment with the aim of establishing buffers, or fiscal space, to help ease the impact of such an event.
Fiscal policy in the United States and elsewhere, the report concludes, “should strike the right balance between growth and debt sustainability objectives,” while also “adapting to shifting demographics, advancing technology, and deepening global integration.” Although the United States may have the fastest growing debt among developed countries, it is not too late to implement fiscally responsible policies that reverse this course and put the nation on a path toward a sustainable fiscal future.
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