The US government’s debt burden is on track to exceed levels in both Italy and Greece for the first time this century, according to IMF forecasts, underscoring the parlous state of America’s public finances.
General government gross debt in the US will rise by more than 20 percentage points from now to reach 143.4 per cent of the country’s GDP by the final year of the decade, IMF forecasts show, exceeding previous records set after the pandemic.
That comes as the IMF estimates that the US budget deficit will hover above 7 per cent of GDP every year until 2030 — the highest of any rich nation tracked by the fund for this year and the rest of the decade.
Italy and Greece have long been highlighted by economists for their fragile public finances. Both countries were at the heart of the euro area sovereign debt crisis of 2010-2012, with Greece requiring a bailout and restructuring overseen by the IMF and EU.
But government debt burdens in both European countries are projected to be on a downward trajectory at the end of the decade as they keep a tight grip on their budget deficits.
By contrast, the US debt-to-GDP ratio will still be rising in 2030, according to the IMF data released this month, with the Congressional Budget Office expecting it to increase for decades thereafter.
“It is a symbolic moment, and according to the CBO the projections are for US debt to carry on rising — that is the impact of running perpetual deficits,” said Mahmood Pradhan, head of global macro at the Amundi Investment Institute.
“But Italy has a weaker growth outlook than the US, so this should not be read as meaning Italy is out of the woods.”
As it boasts the global reserve currency, the US has much more borrowing capacity than European nations.
However, said James Knightley, US economist at ING, “many US politicians and investors look down somewhat on Europe and its slow growth and struggling economies, but when you have metrics like this, the conversation changes”.
The US federal deficit expanded rapidly under the Biden administration, despite unemployment hovering around record lows. The IMF projections show officials believe the Trump administration is doing little to address the problem.
Joe Lavorgna, economic counsellor to US Treasury secretary Scott Bessent, said this month that the Trump administration had made progress in cutting spending and raising revenues through tariffs on US imports.
“What people are missing is the fact that much of the improvement in this year’s fiscal deficit has happened from April onwards,” Lavorgna told the Financial Times.
US gross general government debt has remained below the levels of both Italy and Greece since at least the beginning of the millennium, according to the IMF data. The gauge is a broad measure of indebtedness that includes both central and local government.
An alternative measure — net government debt, which offsets financial assets — shows the US still around 10 percentage points below Italian levels of indebtedness at the end of the decade.
Joe Gagnon, of the Peterson Institute think-tank, said the net measure was a better read on the US’s debt burden, as it closely reflects the portion of debt that investors need to hold. “But this net measure is rising too,” he said.
By contrast, the IMF expects Italy’s net debt burden to be falling from 2028 onwards. It did not give net debt projections for Greece.
Italy has long struggled to curb its debt load because of feeble GDP growth rates, with the IMF forecasting growth of just 0.5 per cent this year and 0.8 per cent in 2026.
Still, Italian Prime Minister Giorgia Meloni’s government has won plaudits from foreign investors for its efforts to pare back Rome’s budget deficit. This year, Italy is forecast to end the year with a primary surplus of 0.9 per cent of GDP, higher than its initially forecast 0.5 per cent.
Rome expects a fiscal deficit — which was 8.1 per cent of GDP in 2022, the year Meloni took office — of 3 per cent of GDP this year, which would allow Italy to exit the EU’s excess deficit proceedings a year earlier than planned.
“There is a continuing, cautious approach to fiscal policy,” said Filippo Taddei, senior European economist at Goldman Sachs.
DBRS Morningstar upgraded Italy’s sovereign rating to “A low” from “BBB high” this month. Analysts say Italy’s quest to strengthen its public finances has been buoyed by its access to more than €200bn in funds from the EU’s pandemic recovery programme.
Carlo Capuano, deputy head of the sovereign rating team at Scope Ratings, said Italy also benefited from a pick-up in the labour market and higher tax collection, buoyed in part by growing use of digital payments.
By contrast, Gagnon said the US political situation made it difficult to see how the country’s yawning deficits could be narrowed, no matter who was in power.
“Democrats don’t want to cut spending and Republicans don’t want to raise taxes,” said Gagnon. “They both want to cling on to that. I don’t know when that dynamic will change.”
Maury Obstfeld, a former IMF chief economist who is now a professor at Berkeley, said any forecast that the US’s fiscal position was sustainable “has to be based on wishful thinking about future US productivity growth, tariff revenue, demographics or interest rates, or possibly all of the above”.
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