IMF warns rising US public debt poses 'growing stability risk'

2026-02-26 - 10:32

The International Monetary Fund (IMF) issued a warning Wednesday that rising US public debt presents a "growing stability risk" for both the American and global economies, even as it projected accelerated growth for 2026. In its preliminary Article IV consultation findings, the IMF acknowledged strong US economic performance in 2025 supported by robust productivity growth despite a year-end government shutdown. Policy Agenda and Economic Performance The IMF noted that US policymakers are pursuing an ambitious agenda aimed at raising living standards and boosting economic self-sufficiency through strengthening domestic manufacturing, reducing trade deficits, increasing energy production, and scaling back the federal government's economic role. Despite tariffs pushing up goods inflation, services inflation continued easing, and the labor market remained near full employment. Financial conditions stayed relatively loose, stock markets reached record highs, and the federal deficit narrowed slightly to 5.9% of GDP in fiscal year 2025. Growth Projections and Fiscal Warning Growth is projected to rise from 2.2% last year to 2.4% this year, with unemployment forecast to remain around 4% through 2027. However, the IMF warned that the budget deficit is expected to exceed 6% of GDP in coming years, with federal debt continuing to rise steadily as a share of GDP. The fund cautioned that keeping the overall deficit at 7–8% of GDP could push public debt to approximately 140% of GDP by 2031, stressing the urgent need for a "clear and front-loaded fiscal consolidation plan" to reverse the trajectory. Monetary Policy Outlook On monetary policy, the IMF said the Federal Reserve could appropriately ease restrictions during 2025 as job growth slows and second-round tariff effects remain limited, projecting the federal funds rate to fall to 3.25–3.5% by the end of 2026. IMF Managing Director Kristalina Georgieva affirmed that while the US economy is expected to remain strong this year and next, "the continued rise in public debt remains a source of concern and requires decisive action," underscoring the tension between near-term economic resilience and long-term fiscal sustainability.