IMF Chief Says Growth Alone Won't Fix $40 Trillion U.S. Debt as Treasury Questions the Fund's Forecasts

With the national debt at a record $40.3 trillion according to Treasury data, the fight over how to deal with it moved to Bangkok this week, where IMF Managing Director Kristalina Georgieva challenged the administration's plan on Wednesday, Oct. 14.

Asked at the IMF-World Bank annual meetings whether the U.S. needs tighter fiscal policy, Georgieva said Bessent recognizes that deficits and debt are too high. But she said relying on growth to fix them falls short.

"Growth, of course, helps, but it cannot deliver fast enough the necessary adjustments," she said. "There is no magic." She added: "You have to go in a direction of tightening, bringing the deficit down."

Treasury hits back at the IMF's record

Treasury did not take the criticism quietly. David Zervos, counselor to Bessent, told Fortune: "When we see pieces on the IMF, it's good to remember how messy their forecasts have been in the past." He cited rosy IMF predictions ahead of the 1997 Asian financial crisis and the 2008 global financial crisis.

Bessent's own position is on the record. "With 3% growth, we grow our way out of this," he said last month. In August he told CNBC: "There's nothing magic about the $40 trillion number. And we can grow our way out of that." He has also said the debt-to-GDP ratio could start falling "very soon."

He has discussed a fiscal consolidation package to cut spending. No public details have been provided.

Bessent did not attend the Bangkok meetings, and he was not at the G20 finance ministers' session he was expected to chair, according to BigGo Finance. That outlet reports the U.S. delegation was led by Deputy Treasury Secretary Francis Brooke and Under Secretary for International Affairs Erin Browne. Another report said Bessent missed the sessions for domestic engagements.

What the numbers say about 3% growth

The U.S. has hit 3% annual growth in only five calendar years, the most recent being 2019, according to a Council on Foreign Relations analysis. The IMF's World Economic Outlook, released Tuesday, forecasts 2.3% U.S. growth in both 2026 and 2027. Fortune cites an estimate of 2.2% for this year.

There is a bullish data point for Bessent. The Atlanta Fed's tracker puts third-quarter growth at 3.6%, driven by consumer spending, business investment and inventories.

But CBO Director Phillip Swagel said last week that stabilizing federal debt would take real growth of at least 5% if the interest rate is 4%. At a 5% rate, he put the required figure at 6%, according to Bloomberg.

The IMF's April Fiscal Monitor projected U.S. gross general-government debt rising from 123.9% of GDP in 2025 to about 142% by 2031. The deficit is expected to exceed 6% of GDP in fiscal 2026.

Borrowing costs are already elevated

The benchmark 10-year Treasury yield was around 5.2% on Wednesday, near levels last seen in 2002. The 30-year held around 5.55%.

Net interest took about 15% of federal spending in fiscal 2026 and about 20% of revenue, according to figures cited by Fortune. The Committee for a Responsible Federal Budget has projected that by fiscal 2031 the average interest rate on federal debt will exceed the growth rate of the economy. That is the condition for a self-reinforcing debt spiral.

Rodrigo Valdes, director of the IMF's Fiscal Affairs Department, said fiscal risks are rising and "a proper reaction is largely absent in many countries." He added that in major advanced economies, "the effect of fiscal indiscipline does not stop at the border. It travels to the rest of the world."

Poorer countries feel the squeeze

The IMF's latest Fiscal Monitor said interest payments among the world's poorest countries have reached historic highs relative to revenue. Declining aid is leaving financing gaps that some of those governments cannot fill.

The Iran war has pushed up energy costs and global inflation, which have helped drive interest rates to multidecade highs, according to the AP's account of the meetings.

UK Foreign Secretary Ed Miliband said on the sidelines: "The Global South is paying the price for rising interest rates in wealthier countries." He called for "a new deal on debt" with longer repayment horizons and refinancing at better rates.

Georgieva also said global imbalances are widening. The U.S. must save more, she said, and Europe must invest more.

Warsh weighs in

Fed Chair Kevin Warsh joined Georgieva for a fireside chat in Bangkok on Oct. 16. He described a "synchronous tightening" by major central banks over recent months. "There's no free riders," he said.

The Fed raised rates last month for the first time in more than three years, according to the Epoch Times. The federal funds rate now sits at 3.75% to 4%. Warsh declined to signal what comes next. "I don't prejudge meetings," he said.

Traders overwhelmingly expect the Fed to hold at this month's FOMC meeting, with futures pointing to a December hike.

Warsh said he was surprised by the resilience of the U.S. and global economies, which he would not "have predicted five or six months ago." The IMF's outlook still says risks are "skewed to the downside," citing conflicts, fiscal vulnerabilities, reassessments of AI expectations and renewed trade tensions.

The next concrete test is the FOMC meeting later this month. The Treasury's promised consolidation package, which has no public details yet, is the other open item.

It will have to show how the deficit comes down while the 10-year sits above 5%.