US Default could have ‘Serious Repercussions’ on Global Economy: IMF

WASHINGTON: On Thursday, the International Monetary Fund (IMF) said that a U.S. debt default brought on by the failure to raise the country’s debt ceiling could have “very serious repercussions” for the global economy.

According to a Reuters report, spokesperson Julie Kozack of the IMF said that the U.S. authorities need to stay vigilant with regard to the banking sector in the country, including regional banks. Kozack elaborated that while the IMF cannot quantify the impact of a U.S. default, it is likely that higher interest rates could result from it causing instability across the global economy.

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In April, the IMF forecast a global GDP growth of 2.8 percent in 2023, but indicated that turmoil in the financial market could “slam output growth back to 1.0%”. According to Kozack, the IMF want to “avoid those severe repercussions”.

The spokesperson added that the IMF is “calling on all of the parties to come together, reach consensus and resolve the matter as quickly as possible”.

On Wednesday, the U.S. government expressed concern over raising its approximate $31.4 trillion debt ceiling as Republicans continue to insist on spending cuts. The move comes as President Joe Biden and Congressional Republican Kevin met to discuss the concerns in three months.

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On the other hand, U.S. Treasury Secretary Janet Yellen warned that a default on payments could happen as early as 1st June if Congress fails to raise the ‘borrowing cap’. Additionally, Kozak expressed the IMF is welcoming the “decisive” actions of the U.S. regulators and policymakers working to contain the fall in the banking sector, in three major regional lenders across the U.S.

Speaking on the matter, Kozak said that the IMF hopes to conduct its “Article IV” annual review of U.S. policies, including analyzing the impact of “pressures” on regional banks.