Security guards stand outside a building near a sign promoting the International Monetary Fund/World Bank Spring Conference held in Washington, DC on April 17, 2025.
Jim Watson | AFP | Getty Images
The International Monetary Fund predicts that US tariffs will help lower the country’s fiscal deficit in 2025.
A 191-nation fiscal monitor report released Wednesday showed that the overall US federal deficit fell to 6.5% of gross domestic product this year, down from 7.3% in 2024.
The narrow gap between spending and revenue is “conditional on an increase in tariff revenue,” according to the report.
This level was calculated based on the IMF “reference point” forecast explaining the tariff announcements made as of April 4th. This includes the US mutual tariffs announced on April 2, but the following 90-day rollout will exclude exemptions from smartphones, semiconductors and other technological products.
Against this backdrop, the IMF estimates that as revenues increase by 0.7%, the deficit will fall to 5.6% of GDP in the medium term.
Uncertain income
Certainly, the report said “the magnitude of the increase in tariff revenue is very uncertain.”
One warning against a decline in forecasts for deficits is the extent to which tariffs put downward pressure on imports into the US. This varies greatly from product to product, the report says.
“The tariff schedule itself is uncertain and plays an important role,” the report continued.
The IMF acknowledged another risk to its forecast. Whether tariffs could lead to a broader slowdown in economic activity and a slump in other tax revenue segments, such as income tax, offsets higher incomes from tariffs.
“These forecasts are highly uncertain and do not take into account the measures being discussed in Congress under budgetary settlements,” the fund said.
Benchmark 10-year Treasury bond yields have skyrocketed in recent weeks, with the final transaction nearly 4.40%, higher tariffs announced, rising inflation forecasts and lowering the dollar.
If the total US government debt continues to rise sharply, the IMF believes it will boost long-term interest rates and debt financing costs.
“Specifically, a 10% point increase in GDP in US public debt from 2024 to 2029 could result in a 60 point increase in the 10-year rate five years ago,” IMF staff wrote. One basis point equals 1/100% or 0.01.
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