IMF urges U.S. to cut budget deficit as China faces pressure to boost spending
The IMF urges the U.S. to reduce its budget deficit and public debt, China to boost domestic consumption, and Europe to invest more as global bond yields rise.
Raja Awais Ali
10/14/20264 min read
IMF Urges US to Cut Budget Deficit as China Faces Calls to Boost Domestic Spending
The International Monetary Fund (IMF) has asked the United States to take measures to reduce its public debt and budget deficit, saying that growth alone will not be sufficient to put government finances on a sustainable footing. The Fund also urged China to reduce its dependence on exports and boost domestic consumption. The recommendations were made on October 14, 2026, the day the IMF and the World Bank held their annual meetings in Bangkok, Thailand, at which rising borrowing costs, global trade imbalances, public debt and the impact of artificial intelligence featured among discussion topics.
IMF Managing Director Kristalina Georgieva warned that the United States could not rely only on economic growth to shrink its debt and budget deficit at a necessary speed. While the growth of the US economy helped the government increase its revenues and improve its fiscal position, additional fiscal measures needed taking to ensure that the country’s public debt was sustainable.
US Treasury Secretary Scott Bessent agreed that the deficit and public debt were too high and needed being brought into sustainable territory. The administration of President Donald Trump has pursued economic growth, and Republicans in Congress passed large tax cuts last year. Bessent did not attend the Bangkok meetings, however, choosing to concentrate on domestic political campaigns as the US midterm election campaign gathered pace.
Georgieva pointed to the US and European countries as examples of advanced economies with unhealthy levels of debt. She warned that the rise in borrowing costs in large economies also affected developing countries, which the financial markets forced into reducing their own debt.
Rodrigo Valdes, director of the IMF’s Fiscal Affairs Department, said inflation, high levels of debt and rising bond yields had significantly compressed the scope for fiscal policy. Increasingly high bond yields can force governments to tighten their budgets as they have to spend more on interest payments and face difficulties in refinancing. Valdes said the Fund had raised the priority of fiscal consolidation, as the risks posed by growing debt became more acute.
The Fiscal Monitor report, which the IMF published on October 14, warned that the current environment of higher borrowing rates could make it more difficult to reduce public debt. Governments needed to balance spending and revenues while still servicing their debts and funding public services.
China Urged to Shift Toward Domestic Consumption
Georgieva also urged China to change its growth model, saying that the country needed to encourage domestic consumption and reduce its reliance on exports. Her comments followed reports that China was set to post a record trade surplus, which has fueled concerns about global trade imbalances.
The US has expressed concerns about China’s overcapacity and the impact of its exports on the global economy. The country has used its G20 presidency to push for action from its allies on what Washington says are unfair Chinese trade practices.
Georgieva noted that there were different priorities for different groupings of countries. China needed to boost consumption, the US needed to increase savings, and Europe needed to invest more to increase its competitiveness. For China, this meant that it needed to encourage domestic consumption. For the US, it meant that it needed to address its budget imbalance and encourage savings. For European countries, it meant that they needed to boost investment to increase competitiveness.
G20 finance ministers were due to meet on the sidelines of the Bangkok proceedings on Thursday, with trade policies of the various countries and the challenges of global imbalances set to be discussed.
IMF Calls for More Support for Vulnerable Economies
The IMF also called on countries to fund programs to provide support to developing countries and economies facing financial difficulties. Georgieva pointed to two funds, the Poverty Reduction and Growth Trust and the Catastrophe Containment and Relief Trust, which provided low-interest loans to poor countries and made grants to poor and vulnerable member states for debt-service relief, respectively.
The average share of revenue being devoted to debt service in poor countries was now 14% compared to 6% a decade ago, with the increase reflecting the impact of higher borrowing costs. The trend meant that governments had less money to spend on health, education, infrastructure and other vital services. Georgieva warned that the threat of a deepening divide was especially acute for vulnerable countries, which faced enormous difficulties in raising the funds to service their debts.
Artificial Intelligence Adds to Global Economic Concerns
The impact of artificial intelligence on the global economy was also a topic of concern at the meetings. The IMF’s forecasts, which it released at the start of the week, showed that the benefits of investments in AI were unevenly distributed, with advanced economies set to benefit from the technology. Less-developed countries would find it difficult to invest in AI and might find themselves falling behind.
The financial challenges facing some economies could also inhibit their ability to invest in AI. Countries with high debt and high interest rates would find it difficult to finance such investments as they would have to devote a large part of their revenues to servicing their debts.
The message of the IMF in Bangkok was that higher levels of economic growth would not address global concerns. The US needed to show determination in reducing its budget deficit and public debt, China needed to adjust its economic model to emphasize domestic consumption and Europe needed to increase investment to improve its competitiveness. Sufficient support for vulnerable economies was needed to ensure that they were not unduly affected by the rising costs of interest payments and the prospect of a widening gap between those countries that were able to invest in AI and those that were not.
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