A guard stands outside the building near signs that advertise the International Monetary Fund/World Bank Spring Meetings in Washington, DC, on April 17, 2025.
Jim Watson | AFP | Getty images
The International Monetary Fund predicts that American rates help to reduce the tax deficit of the country in 2025, even if American growth and inflation are deteriorated thanks to an intensifying trade war.
The Fiscal Monitor Report of the 191-Nation that is released on Wednesday projects that the total federal deficit of the US will fall this year to 6.5% of the gross domestic product, compared to 7.3% in 2024.
The narrower gap between expenditure and income is “depending on higher tariff income,” the report said.
The level was calculated on the basis of the “reference” predictions of the IMF, which take into account tariff announcements made from 4 April. This includes the Mutual Rates of the US announced on 2 April, but excluding subsequent rollouts such as the 90-day break over higher rates and the exemption on smartphones, semiconductors and other technological goods.
Against this background, the deficit is estimated to be 5.6% of GDP in the medium term, since income rise by 0.7%, according to the IMF.
Uncertain income
Certainly, the report noted: “The size of the increase in tariff income is very uncertain.”
One of the reservations for the reduced shortage projection is the extent to which rates will be put down on imports in the US, largely dependent on how consumers react to higher prices. This varies greatly between products, the report noted.
Moreover, “the tariff schedule itself is uncertain and it plays a crucial role”, the report continued.
The IMF recognized another risk for his prediction: whether rates lead to a broader delay in economic activity that could lead to a decline in other segments of tax revenues – such as income tax – that compensate for higher income of rates.
“These projections are very uncertain and do not take into account measures that are discussed in the congress, under budget coordination” Negotiations, according to the fund.
The proceeds on the Benchmark 10-year-old Treasury Note have risen in recent weeks, the last trade near 4.40%, as higher rates were announced, inflation predictions were increased and as the dollar dropped.
If the total size of the US government debt continues to rise, the IMF thinks that it will increase interest rates and financing costs in the longer term.
“In particular, an increase of 10 percentage points of GDP in the US government debt between 2024 and 2029 could lead to an increase of 60-base points in the 5-year forward to 10-year rate,” wrote IMF staff. One basic point is equal to 1/100th of one percent or 0.01.
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