① According to the latest forecast from the International Monetary Fund (IMF), the US government's debt situation will be worse than that of Italy and Greece by 2030, highlighting the dangerous state of US public finances; ② The IMF predicts that by 2030, the US government's debt-to-GDP ratio will rise by more than 20 percentage points from the current level, reaching 143.4%, breaking the record set after the COVID-19 pandemic.
According to the latest forecast from the International Monetary Fund (IMF), the U.S. government's debt situation will be worse than that of Italy and Greece by 2030. This highlights the perilous state of U.S. public finances, as Italy and Greece are two of Europe's most notoriously fragile public finances.
The IMF predicts that by 2030, the ratio of US government debt to GDP will rise by more than 20 percentage points from the current level, reaching 143.4%, breaking the record set after the COVID-19 pandemic .
Meanwhile, the IMF estimates that the U.S. budget deficit as a percentage of GDP will hover above 7% annually until 2030. This would be the highest deficit rate among all the wealthy countries tracked by the institution.
Italy and Greece have long been the focus of economists' attention due to their fragile public finances. Both countries were at the heart of the 2010-2012 Eurozone sovereign debt crisis, with Greece receiving a massive sovereign debt bailout from the IMF and the EU and undergoing debt restructuring.
However, due to strict control over budget deficits, the government debt burden of these two European countries is expected to decline by 2030.
In contrast, the U.S. debt-to-GDP ratio will continue to rise through 2030. The Congressional Budget Office (CBO) projects that this ratio will continue to increase for decades to come.
Although the United States has far greater borrowing capacity than European countries due to its status as the global reserve currency, this turning point is still significant.
“This is a symbolic moment, as the CBO forecasts that U.S. debt will continue to climb—that’s the effect of a persistent deficit,” said Mahmood Pradhan, global head of macro at Amundi Investment Institute, research arm of Europe’s largest asset manager, Amundi. However, the institute also noted, “Given Italy’s weaker growth prospects compared to the U.S., this should not be interpreted as Italy being out of the woods.”
During former President Biden's administration, the U.S. federal deficit expanded rapidly despite unemployment hovering near historic lows. IMF forecasts indicate that officials believe the Trump administration has made little progress in addressing the debt problem.
However, another indicator—net government debt excluding financial assets—shows that by 2030, the United States' debt level will still be about 10 percentage points lower than Italy's .
Joe Gagnon, a senior fellow at the Peterson Institute, said that the net debt metric is a better indicator of the U.S. debt burden because it closely reflects the amount of debt that investors need to hold, but this net debt metric is also rising.
The IMF expects Italy's net debt burden to begin declining from 2028, but did not provide a net debt forecast for Greece.
Just as the IMF made the above prediction, the US government's national debt surpassed $38 trillion last Wednesday, marking the first time in history that it has exceeded this threshold. This is also the fastest increase of $1 trillion in US debt outside of the COVID-19 pandemic period. Currently, it has only been a little over two months since the total US national debt surpassed $37 trillion.
(Article source: CLS)
