The IMF Called on the U.S. to Reduce Spending. Washington Pushed Back.
A newly-appointed U.S. official took aim at the International Monetary Fund (IMF) over claims that economic growth will likely not be enough to offset a lack of reduced fiscal spending.
“The authorities very much rely on strong growth in the United States” to help reduce debt, Georgieva said this week, referring to the Trump administration’s economic strategy. “At the Fund, we believe that growth of course helps, but it cannot deliver fast enough the necessary adjustments. So, some (fiscal) measures would be necessary.”
The fund’s latest Fiscal Monitor report reinforced that message, warning that postponing fiscal adjustments while borrowing costs remain elevated could force governments into more difficult decisions later. Rodrigo Valdes, director of the IMF’s Fiscal Affairs Department, said the recent surge in bond yields had made the situation more urgent. “We dialled up the urgency of our message,” Valdes said.
Higher bond yields increase the cost of issuing government debt and refinancing existing obligations, potentially forcing governments to devote more revenue to interest payments instead of public services and investment. Georgieva identified the United States and European advanced economies as among the “worst offenders” when it comes to excessive public debt.
However, David Zervos, counselor to Treasury Secretary Scott Bessent, told CNBC on Thursday that “when we see pieces on the IMF, it’s good to remember how messy their forecasts have been in the past.”
“We saw them very negative on Russia in 2022, and Russia actually barely saw a blip down in growth before it started growing strongly. We saw them very positive on Argentina after their big bailout of $57 billion. And by 2020, Argentina was basically in default again. And the history books go on and on, whether it’s Greece, whether it was the transitory call on inflation in the U.S.,” Zervos noted, calling on people to take the institution’s forecasts with “a grain of salt.”
Despite the warnings, the IMF raised its global economic growth forecast for 2026, citing an artificial intelligence investment boom that has helped cushion the impact of the Middle East war and rising energy prices. However, the organization warned Tuesday that the world’s ability to withstand further economic shocks is rapidly diminishing.
In its latest World Economic Outlook, released during the IMF and World Bank annual meetings in Bangkok, the fund projected global growth of 3.1% this year, slightly above its July estimate of 3%. The revised forecast still represents a slowdown from the 3.5% expansion recorded in 2025.
Growth in 2027 is expected to reach 3.4%, unchanged from the previous projection. “The global economy has been resilient, but that resilience is reaching its limits,” Silvana Tenreyro, the IMF’s economic counsellor and research department director, told reporters Tuesday.
The IMF now expects the Strait of Hormuz, a critical shipping route for global oil supplies, to reopen in March 2027, significantly later than its previous assumption of mid-July 2026. Conditions are not expected to return to pre-war levels until October 2027.
