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IMF Warns of Severe Repercussions from U.S. Debt Default on Global Economy

The International Monetary Fund (IMF) warned that if the United States fails to raise its debt ceiling, it could lead to a debt default with "very serious repercussions" for both the U.S. and global economies. This could result in higher borrowing costs and further instability.

IMF logo
IMF logo

Vigilance for U.S. Banking Sector Vulnerabilities

IMF spokesperson Julie Kozack stressed the importance of U.S. authorities remaining alert to new vulnerabilities in the banking sector, particularly regional banks, as they adapt to a potentially higher interest rate environment.

Quantifying the Impact on Global Growth

While the IMF cannot immediately quantify the impact of a U.S. default on global growth, it previously projected a 2.8% global GDP growth for 2023. However, deep financial market turmoil could reduce output growth to just 1%.

Potential Consequences of Higher Interest Rates

Kozack mentioned that higher interest rates could result from a U.S. default, resulting in broader instability in the global economy. She urged all parties to reach a consensus and resolve the matter quickly.

U.S. Debt Ceiling Talks Underway

Detailed discussions on raising the $31.4 trillion U.S. government debt ceiling have begun, with Republicans insisting on spending cuts. President Joe Biden and top congressional Republican Kevin recently met to discuss the issue for the first time in three months.

Deadline for Raising Borrowing Cap

U.S. Treasury Secretary Janet Yellen warned that a default on U.S. payments could happen as early as June 1 if Congress fails to raise the borrowing cap.

Addressing U.S. Banking Sector Turmoil

Kozack praised U.S. regulators and policymakers' decisive actions to contain the failures of three major regional U.S. lenders in recent weeks. The IMF will soon conduct its "Article IV" annual review of U.S. economic policies, analyzing the impact of pressures on regional banks, including any tightening of credit conditions.