IMF says US default would have ‘very serious repercussions’ on global economy

On Thursday, the International Monetary Fund (IMF) warned that a U.S. debt default brought on by the failure to increase the nation’s borrowing limit would have “severe¬†repercussions” for both the domestic and global economies, including probably increased borrowing prices.

At a press conference, IMF spokeswoman Julie Kozack also said that while the country adjusted to a much higher interest rate environment, it was important for authorities in the United States to be alert for any potential new banking sector vulnerabilities, especially those that may arise in regional banks.

Kozack stated that the IMF could not estimate the immediate effects of a US default on global economic development. In April, the Fund projected 2.8% global GDP growth for 2023. However, it warned that more financial market volatility, as seen by a steep decline in asset values and a reduction in bank lending, may cause output growth to fall to 1.0%.

But she said higher interest rates could result from a U.S. default and broader instability in the global economy.

Kozack stated, “We would want to avoid those serious consequences.” And as a result, “we are urging all parties to come together, find common ground, and swiftly resolve the issue.”

A day after Democratic President Joe Biden and top congressional Republican Kevin spoke on the subject for the first time in three months, detailed discussions on extending the U.S. government’s $31.4 trillion debt ceiling began on Wednesday with Republicans continuing to demand on expenditure cutbacks.

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

According to Kozack, the IMF has commended the “decisive” steps taken by American regulators and policymakers to contain the collapses of three significant regional U.S. institutions in recent weeks in response to the turbulence in the country’s banking industry.

According to Kozack, the Fund will shortly perform its “Article IV” annual evaluation of U.S. economic policy, and that assessment, which will be released near the end of May, will examine the effects of pressures on regional banks, including any tightening of loan conditions.

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