The number two of the International Monetary Fund (IMF), Gita Gopinath, warned about the excessive spending and fiscal deficits of the US and other advanced economies in the world and urged to reduce them with an effort of “fiscal consolidation” for which she suggested a tax scheme more progressive and in which capital gains and inheritance taxes “are implemented more effectively.”
Gopinath, a North American citizen of Indian descent and also very involved in following the “Argentine case,” said in an interview with the British newspaper The Financial Timesthat the US has “ample” room to control spending and increase taxes and that developed economies must “invest in fiscal consolidation” and reduce their public debt to pre-pandemic levels. Gita Gopinath, deputy director of the organization, also very involved in the monitoring the Argentine economy, said that “the temptation to finance all spending with credit” is something to avoid.
The warning from the Fund’s number two about the North American economy coincides with the growing concern of economists and investors over years of excessive fiscal spending by both Democratic and Republican governments. The US Congressional Budget Office (CBO) estimates that the country’s public debt in relation to GDP will exceed the peak it reached during the Second World War in 2029. It forecasts deficits of between 5.2 and 6.3% of annual GDP over the next ten years if legislative measures do not change.
“The temptation to finance all spending by borrowing heavily is something countries should avoid,” Gopinath told the FT. In fact, in its April “Fiscal Monitor” the Fund had projected that the US fiscal deficit would be 7.1% of GDP in 2025, more than triple the 2% average deficit of other advanced economies and warned that the holes US and Chinese fiscal policies imply “significant risks” for the global economy.
In its April “Fiscal Monitor,” the Fund projected that the US fiscal deficit would be 7.1% of GDP in 2025, more than triple the 2% average deficit of other advanced economies.
On the contrary, the official praised the recent fiscal reforms of the euro area, although she noted that the implementation of the measures agreed upon by the European Union last December “is going to be absolutely critical.”
According to the FT, 2025 will be a key year for the US fiscal situation: on the one hand, the Republican candidate, donald trumphas promised to make permanent the tax cut he had made in 2017, and on the other, the current president and Democratic candidate for re-election, Joseph Bidenhas failed to control high levels of spending, raising concerns that the US fiscal deficit will go even further than expected.
The Fund’s annual review of the US economy, the so-called “Article 4” review of the agency’s charter, will be published at the end of June. The British newspaper notes that Gopinath said that in advanced economies there is no way to avoid the need for fundamental reforms in pension systems and health spending, as the population of these societies ages. “That’s going to be critical,” he noted.
The adoption of Artificial Intelligence could put at risk 30% of jobs in advanced economies, 20% in emerging economies and 18% in low-income countries.
The current North American administration has failed to control spending on health and social care programs and Gopinath implied that the IMF supports the White House’s efforts to make rich Americans pay more taxes. “We see ground in many countries for more progressive taxation, said the official, with a more effective implementation of taxes on capital gains and inheritances.
Furthermore, Gopinath speculated that the adoption of “Generative Artificial Intelligence” may amplify the next recession, even if it increases productivity and stimulates growth. According to the Fund, the use of Artificial Intelligence could put at risk 30% of jobs in advanced economies, 20% in emerging economies and 18% in low-income countries.
In this context, the IMF deputy director urged countries to think about how to support workers displaced by new technology. “We believe that unemployment insurance may be higher in some countries,” she said, as well as mentioning the possibility of “wage insurance” to cover the gap between old and new salaries.
