IMF warns US default would have 'serious repercussions' worldwide

By Eric Martin

The International Monetary Fund warned of “very serious repercussions” for the US and the global economy if the nation defaults on its debt, urging Democrats and Republicans to reach a consensus on the looming debt ceiling.
 

Potential consequences from a US default would include higher interest rates and broader instability, IMF spokeswoman Julie Kozack said in a briefing Thursday. That would add to the shocks of the past few years, she said, including the Covid-19 pandemic and war in Ukraine.

“Discussions in the US are taking place at a time that is a very difficult for the global economy,” she said. “Our assessment is that there would be very serious repercussions, not only for the US but also for the global economy, should there be a US debt default. And we strongly encourage the parties in the US to come together to reach a consensus to urgently address this matter.”

President Joe Biden and congressional leaders are scheduled to meet Friday on the debt issue, following initial discussions earlier this week.

US Treasury Secretary Janet Yellen this week warned a default “would spark a global downturn” and “would also risk undermining US global economic leadership and raise questions about our ability to defend our national security interests.”

The increase in interest rates so far has already hurt some countries, especially those in debt distress and facing vulnerabilities, Kozack said. The IMF estimates that 15% of low-income countries are in debt distress and 45% are at risk, and already sees global growth over the next five years as the weakest in more than three decades.

The US government reached the statutory cap on borrowing in January and the Treasury has since been using special accounting measures. Yellen has told Congress those measures could run out as soon as June 1.