The head of the agency warned that the global financial system would be plunged into uncertainty unless lawmakers reach an agreement
International Monetary Fund (IMF) Managing Director Kristalina Georgieva criticized Washington’s ongoing debt-ceiling impasse between the Biden administration and top Republicans, saying a U.S. default would have major knock-on effects on world economic prosperity .
“The U.S. Treasury market is the backbone of the stability of the global financial system,” Georgieva told a news conference on Friday following the IMF’s Article IV consultation with U.S. economic data. “You’re anchored, and the world economy — the ship we’re all on — is in choppy and, worse, uncharted waters.”
Georgieva added “Right now, the most important impact is the world’s anxiety about something that shouldn’t be a problem,” that default would be “Inevitably” Contribute to the contraction of the U.S. and global economies.She said it would also be a “Shock followed by shock” For financial institutions, they are still reeling from a hit or two from the Covid-19 pandemic and vulnerabilities related to Moscow’s military operations in Ukraine
Talks between Biden administration officials and a team of Republican representatives led by House Speaker Kevin McCarthy remained deadlocked for most of the past week.
Both sides have expressed confidence that a breakthrough is possible that would prevent a default early next month, without which Washington would be unable to make the required payments to its bondholders. Experts including Moody’s Analytics and the American Enterprise Institute predict that such a scenario would be devastating to the economy and could trigger a global financial crisis.
U.S. Treasury Secretary Janet Yellen said on Friday she had pushed back the so-called “X-Date” — the date by which the Treasury will run out of money to meet its required payments — from an earlier estimate of June 1 until June 5th.
Unless the U.S. raises its debt ceiling, the U.S. Treasury will have to disburse about $92 billion in the first week of June — more money than is expected to be available. Republican negotiators are demanding concessions from the Biden administration, including federal spending cuts and limits on future spending.
U.S. President Joe Biden has insisted on approving debt ceiling hikes without any strings attached, saying the U.S. always pays on time.
The impasse, though, has chafed Georgieva and the IMF. “To everyone’s dismay, a solvable problem in the hands of policymakers continues to drag on until the 12th hour,” she says.