IMF calls for urgent action over risks of massive budget deficits

The International Monetary Fund (IMF) has warned that the world’s leading economies will face the largest fiscal deficits since the COVID-19 pandemic in 2026 and called for urgent action, the Financial Times writes, citing a report titled “World Economic Outlook.”.

According to the IMF forecast, the volume of net borrowing of developed countries this year will reach 5.2% of GDP, the highest figure since 2021. In particular, net government borrowing in the US will reach 8.5% of GDP, increasing from 7.1% in 2025 and from 5.8% in the period before the pandemic.

The Congressional Budget Office predicted that in 2026 the federal budget deficit would reach 5.8% of GDP. According to the Committee on a responsible Federal budget, this figure will be 6.2%. At the same time, according to the IMF forecast, the growth rate of the US economy will remain stable at 2.3% both this year and next year.

In 2026, budget deficits in China and the United States will reach or exceed 8% of GDP, the IMF expects. China’s GDP growth rate will slow to 4.5% from the previous 5% and to 4% by 2027.

Russia’s GDP growth in 2026 and 2027 will be 0.9% compared to 1% in 2025, the IMF predicts. According to Prime Minister Mikhail Mishustin, next year it will grow by 1.4%. “In the future, the dynamics will gradually accelerate, according to the forecast – to 2.4% in 2029,” he said.

The chief economist of the International Monetary Fund (IMF), Silvana Tenreiro, noted that “the economy has shown resilience, but this margin of safety is reaching its limits.”.

“With the cost of long-term government borrowing rising in the leading advanced economies, high levels of public debt and significant refinancing needs are making sovereign borrowers increasingly vulnerable to such abrupt changes in financial conditions,” the IMF warned.

Global growth is forecast to slow to 3.1% in 2026 and accelerate to 3.4% in 2027 if conflict in the Middle East does not intensify and energy markets gradually normalize. The IMF also expects a noticeable increase in global inflation to 4.7% this year and a decrease to 4.1% next year.

“However, the opportunities for adaptation that have helped keep the economy resilient are not limitless, and the risks are skewed to the downside. Further escalation of conflicts, a reassessment of expectations for artificial intelligence (AI), renewed trade tensions and fiscal vulnerabilities could dampen growth. On the other hand, stronger growth in AI investment and AI-related productivity growth or a sustained reduction in geopolitical and trade tensions could contribute to stronger growth, the IMF said.

In April, 54 economies accounted for 95 percent of global economic growth. That number has since dropped to 32, the FT said. “The global economy isn’t just slowing down or accelerating; growth is redistributing between countries depending on how much they are exposed to the impact of the war-induced supply shock and how they are affected by high demand driven by the development of artificial intelligence,” the fund said.

Last week, IMF Managing Director Kristalina Georgieva said global public debt was close to its highest levels since World War II and could soon exceed 100% of GDP.

The IMF’s July report, “The World Economy Between War and Technology,” described the world’s split into two camps: some economies are accelerating on the wave of the AI boom, others are slowing down due to expensive oil.