International Monetary Fund First Deputy Managing Director Gita Gopinath has warned that the United States is running excessively large fiscal deficits and must urgently address its “ever-increasing” debt burden. Her remarks were published in an interview with The Financial Times on Wednesday.
Gopinath’s comments come days after Moody’s downgraded the US sovereign credit rating, citing the federal government’s failure to rein in its rising $36 trillion debt and persistently large deficits.
IMF flags trade policy uncertainty despite tariff rollback
Gopinath also said the US continues to face “very elevated” uncertainty in trade policy, despite recent positive developments such as the rollback of tariffs on China and the signing of a US-UK economic agreement under President Donald Trump’s administration.
Trump is currently pushing to extend tax cuts introduced in 2017 and add further tax incentives—moves that Gopinath and other economists suggest could widen the fiscal gap further.
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IMF lowers US growth outlook, raises recession odds
In its April outlook, the IMF cut its US growth forecast to 1.8 per cent for 2025, down from 2.7 per cent in January. The downgrade reflects trade friction and high borrowing costs, with the fund warning of further downside risks from tariff hikes.
Gopinath said the rise in trade barriers and uncertainty would likely cause a “significant slowdown” in global growth.
“It is absolutely a positive to have lower average tariff rates than the ones we assumed, but there is a very high level of uncertainty, and we have to see what the new rates will be,” she told the FT.
The IMF also raised the probability of a US recession this year to 40 per cent—up from 25 per cent in October 2024.
Moody’s cuts US credit rating over long-term debt risks
Moody’s downgraded the United States’ sovereign credit rating last week, citing an unsustainable fiscal path. The agency said successive US administrations and Congress had failed to agree on measures to reverse the trend of large annual deficits and surging interest costs.
Moody’s had maintained a pristine “Aaa” rating for the US since 1919. It is the last of the three major ratings agencies to lower the country’s credit rating.
China calls on US to stabilise global economy
Following the downgrade, China called on the United States to adopt responsible fiscal and monetary policies to safeguard international economic stability and protect global investor interests.
Trump’s fiscal plans draw investor scepticism
Since returning to the White House on January 20, President Trump has pledged to balance the federal budget. Treasury Secretary Scott Bessent has said the administration is focused on reducing borrowing costs.
However, efforts to raise revenue through tariffs have raised fears of a trade war and further economic slowdown. Spending cuts driven by Elon Musk’s Department of Government Efficiency have also fallen short of original targets.
Market participants remain unconvinced by Trump’s fiscal roadmap, pointing to the widening deficit, volatile bond markets and rising recession risks.
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