IMF Urges U.S. to Cut Deficits as Bond Yields Surge, Tells China to Move Away From Export-Led Growth

The International Monetary Fund (IMF) warned Wednesday that the United States cannot rely on economic growth alone to bring its mounting debt under control, urging Washington to adopt tax or spending measures to reduce deficits while calling on China to shift away from its dependence on exports.

Speaking at the IMF and World Bank annual meetings in Bangkok, IMF Managing Director Kristalina Georgieva said the world's two largest economies must address structural imbalances that are putting increasing pressure on global financial markets.

"The authorities very much rely on strong growth in the United States" to help reduce debt, Georgieva said, referring to the Trump administration's economic strategy. "At the Fund, we believe that growth of course helps, but it cannot deliver fast enough the necessary adjustments. So, some (fiscal) measures would be necessary."

Georgieva said Treasury Secretary Scott Bessent recognizes that US deficits and debt levels are too high and must be brought onto a more sustainable path. Bessent was absent from the Bangkok meetings, choosing to remain in the United States as campaigning intensifies ahead of November's midterm elections.

The Treasury secretary has been a prominent defender of President Donald Trump's economic agenda, including the sweeping tax cuts Republicans approved last year. The IMF's warning creates a challenge for an administration betting that stronger economic expansion will generate enough additional revenue to ease fiscal pressures without significant tax increases or spending reductions.

The fund's latest Fiscal Monitor report reinforced that message, warning that postponing fiscal adjustments while borrowing costs remain elevated could force governments into more difficult decisions later. Rodrigo Valdes, director of the IMF's Fiscal Affairs Department, said the recent surge in bond yields had made the situation more urgent. "We dialled up the urgency of our message," Valdes said.

Higher bond yields increase the cost of issuing government debt and refinancing existing obligations, potentially forcing governments to devote more revenue to interest payments instead of public services and investment. Georgieva identified the United States and European advanced economies as among the "worst offenders" when it comes to excessive public debt.

With Beijing on track to record a historic trade surplus, Georgieva urged Chinese authorities to reduce their reliance on exports and strengthen domestic consumer demand. "For surplus countries, what they need to do is increase domestic consumption. That clearly applies to China's growth model. Shift from exports more toward domestic consumption," she said.

Georgieva summarized the IMF's recommendations for the world's major economic powers in a single sentence. "To put it very simply, China needs to spend more, the US has to save more, and Europe has to invest more," she said.

Europe is facing its own fiscal pressures, particularly France, where rising bond yields have intensified concerns about government borrowing. European Central Bank President Christine Lagarde said Paris must address its fiscal problems domestically rather than expect intervention from the central bank.

"And for that one, the primary and first solution lies at home in France. And it has to do with fiscal policies," Lagarde said during a CNN event in Bangkok. The IMF also warned that developing economies are increasingly vulnerable to higher global borrowing costs.

According to Georgieva, debt-service payments in low-income countries now consume an average of 14% of government revenue, compared with 6% a decade ago, even though their overall debt burdens have eased.

She urged IMF members to strengthen financing for programs supporting vulnerable economies, including facilities offering concessional loans and debt relief.
"The risk of divergence is most dangerous for those that are already further behind," Georgieva said.