International Monetary Fund (IMF) Managing Director Kristalina Georgieva on Thursday urged U.S. policymakers to use the U.S. recovery from the pandemic to pay down the budget deficit.
Georgieva said policymakers should put the U.S. national budget deficit on a “decisive downward trajectory” to prevent investors from starting to lose interest in Treasuries.
She praised legislation enacted under President Biden and former President Trump to stimulate the economy during the pandemic, but said the deficit also needs to be addressed.
“This bill will have a lasting positive impact on rebuilding the US economy, but it must be complemented by measures to decisively lower the public debt-to-GDP ratio,” she said at a press conference on Thursday.
She warned that policymakers should avoid safety net programs like Social Security and Medicare and “seek savings in non-entitlement spending.”
Georgieva sent a clear message about U.S. fiscal prudence, but noted there is no immediate deadline for reducing the deficit.
“We’re proposing that these cuts be implemented over a fairly long period of time, essentially within this decade. We’re not talking about next year,” she said.
Despite rising interest rates set by the Federal Reserve making the national deficit more expensive to service, Georgieva said debt servicing costs remain “quite manageable.”
“The risk of rollover is far from certain in the United States,” said Rodrigo Valdes, IMF’s Western Hemisphere director.
The IMF has a more optimistic outlook for U.S. inflation than the Fed, expecting it to normalize to 2% by the middle of next year. The Fed doesn’t expect inflation to normalize to 2% until 2026.
“Last year we were a bit more optimistic and last year we were proven right,” Georgieva said.
Georgieva did not address the domestic economic situation in her assessment of the U.S. economy, but noted dissatisfaction with globalization in both the U.S. and Europe.
“Decades of globalization have had positive overall outcomes, but also negative outcomes for some communities, including in the United States, where jobs have been lost to cheap imports from other countries. … We have been somewhat complacent in reflecting on those injustices,” she said.
