A top official at the International Monetary Fund (IMF) has urged the United States to address its widening fiscal deficit and growing debt burden, amid renewed concerns over former President Donald Trump’s plans to extend sweeping tax cuts.
“The US fiscal deficits are too large and they need to be brought down,” said Gita Gopinath, the IMF’s First Deputy Managing Director, in an interview with the Financial Times this week.
Her remarks come as Trump’s proposal to prolong the 2017 tax cuts has sparked unease among investors and policymakers. Credit rating agency Moody’s recently downgraded the US’s last pristine triple-A credit rating, citing the country’s deteriorating fiscal outlook.
Gopinath also cautioned that despite some recent improvements—such as a reduction in tariffs on China—the US economy continues to grapple with “very elevated” trade policy uncertainty.
Trump’s administration has claimed that tax cuts combined with deregulation would stimulate enough economic growth to offset revenue losses. However, financial markets and rating agencies remain skeptical. Moody’s estimates that the proposed tax legislation—dubbed the “big, beautiful bill” by Trump—would raise the fiscal deficit from 6.4% in 2024 to nearly 9% by 2035.
US Treasury Secretary Scott Bessent responded to the downgrade by calling it a “lagging indicator” and blamed the fiscal deterioration on the Biden administration. He reiterated the Trump administration’s commitment to fiscal consolidation, promising to reduce the deficit to 3% by the end of Trump’s term if re-elected.
However, Gopinath emphasized the growing urgency to rein in the deficit. “US debt to GDP is ever-increasing,” she said. “Fiscal policy in the US should be consistent with bringing the debt-to-GDP ratio down over time.”
According to the Congressional Budget Office, federal government debt held by the public reached 98% of GDP in fiscal 2024, up from 73% a decade earlier.
While the IMF previously projected a drop in the US fiscal deficit this year—assuming increased tariff revenue—those forecasts did not account for Trump’s pending tax bill, which is currently moving through Congress. Gopinath noted that Bessent was right to call for deficit reduction but stressed the need for credible long-term measures.
Meanwhile, the fiscal uncertainty has rattled financial markets. The US dollar has weakened, and yields on Treasury bonds have surged, with the 30-year bond yield hitting 5.04% on Monday—its highest level since 2023.
In its latest economic outlook, the IMF reduced its 2025 US growth forecast to 1.8%, and global growth to 2.8%, factoring in the economic drag from Trump’s earlier tariffs.
Trump has since announced temporary tariff cuts, including a 115-percentage-point mutual reduction in tariffs with China for a 90-day period, and an agreement with the UK.
Gopinath welcomed these developments but noted that the US’s effective tariff rate remains significantly higher than last year. She added that many of the tariffs on Chinese goods had merely been paused, not removed.
First-quarter GDP figures were broadly in line with IMF expectations, she said, although some data may be distorted by businesses stockpiling ahead of expected tariff hikes. “It’s going to take a little while before the effects of all these developments work through the data,” she said.
“Lower average tariff rates than those assumed in April are certainly a positive step,” Gopinath concluded, “but high uncertainty persists, and we must wait to see where the new rates ultimately land.”
