U.S. dollar banknotes lie on a table in this picture illustration taken in Warsaw Aug. 8, 2011. (Xinhua/REUTERS)
WASHINGTON, June 6 (Xinhua) -- The U.S. public debt is on an unsustainable path, and policy adjustments are needed to lower the fiscal deficit and to put public debt on a gradual downward path over the medium term, the International Monetary Fund (IMF) said Thursday.
The U.S. administration's fiscal expansion has supported economic activity, but this has come at the cost of continued increase in the debt-to-GDP ratio, the IMF said in a concluding statement that describes the preliminary findings of its annual Article IV consultation to review the U.S. economy, laying out a few policy options.
Based on the budget proposal for fiscal year 2020 that President Donald Trump sent to Congress in March, the deficit is expected to reach about 1 trillion U.S. dollars for fiscal year 2020, the Congressional Budget Office (CBO) estimated in May.
Federal debt held by the public would equal 87 percent of GDP in 2029 under the president's budget, compared with 78 percent in 2019, the CBO said.
"Any successful package will likely require steps to address the expected increases in entitlement spending on health and social security, to raise indirect taxes, and to institute a federal carbon tax," IMF Managing Director Christine Lagarde said at a press conference Thursday.
In the statement, the IMF projected the U.S. economy to grow at the rate of 2.6 percent this year, before moderating to 1.9 percent in 2020. The estimation only considered the tariffs that have been put in place, and didn't factor in the U.S. administration's proposed tariffs on its trading partners.
Noting that there are a lot of positives in the macroeconomic outcomes, Lagarde said the IMF is "concerned that the benefits from this decade-long expansion have, in general, not been shared as widely as they could have been."
"Average life expectancy has trended downward in recent years, income and wealth polarization have increased, social mobility has steadily eroded, education and health outcomes are suboptimal, and while the poverty rate is falling, it remains higher than in other advanced economies," said the IMF chief.
"We believe that more attention is warranted to promoting inclusive growth to social outcomes more into line with the good macroeconomic developments," Lagarde said, highlighting policies such as instituting paid family leave, expanding the Earned Income Tax Credit, and helping working families with child and dependent care.
Despite a positive near-term outlook for the U.S. economy, the IMF said a deepening of ongoing trade disputes or an abrupt reversal of the recent ebullient financial market conditions represent "material risks" to the U.S. economy, with concomitant negative outward spillovers.
"These risks are interconnected with trade policy uncertainty, an important factor for both domestic and global financial conditions as well as for business investment decisions," the IMF said.