The International Monetary Fund (IMF) has cautioned that a US default on its debt obligations could have severe consequences for both the American and global economies. During a press briefing, IMF Director of Communications Julie Kozack expressed concern over the current debt ceiling crisis that is taking place between the White House and Congress. She stated that a potential US debt default as early as June 1 could cause significant knock-on effects on the global economy, primarily for developing countries. Kozack encouraged all parties to come together to address the issue urgently.
Repercussions of US Debt Default
Kozack explained that higher interest rates, broader instability, and economic repercussions are some of the potential consequences of a US debt default. She emphasized that the world has recently experienced several shocks, and the IMF wants to avoid severe repercussions at all costs. The Fund predicts that global output growth could fall from 3.4% last year to 2.8% in 2023 before recovering to 3% in 2024. However, any significant market disruptions could cause output growth to plummet to 1.0%.
US Treasury Secretary Warns of Potential Default
US Treasury Secretary Janet Yellen recently warned that the Treasury may not be able to pay all of the government’s bills as early as June 1 if Congress does not raise or suspend the debt limit before that time. Furthermore, the Congressional Budget Office (CBO) estimates that a US default could occur in early June.
Impact of Regional Banking Crisis on the US
Kozack also spoke about the impact of the regional banking crisis in the US. She noted that the transition from low to high-interest rates had exposed some vulnerabilities in some banks, particularly in the United States. While the authorities have taken swift action to address these vulnerabilities, Kozack has urged policymakers to remain vigilant as more hidden vulnerabilities may emerge in this new high-interest rate environment.
In conclusion, the IMF is calling on all parties to come together to reach a consensus and resolve the debt ceiling crisis as quickly as possible. Failure to do so could have grave consequences for the global economy, particularly for developing countries. Higher interest rates, broader instability, and economic repercussions are just some of the potential outcomes of a US debt default, which the IMF wants to avoid at all costs.