The next Greece? IMF warns: US debt ratio will soar past 143%!

The U.S. government's debt burden is rapidly deteriorating, set to surpass European countries like Italy and Greece, which have previously faced crises due to weak public finances, for the first time this century.

According to the latest forecast from the International Monetary Fund (IMF), by 2030, the total government debt of the United States as a percentage of GDP is expected to soar more than 20 percentage points from its current level, reaching 143.4%, breaking the historical record set after the pandemic.

The IMF estimates that the U.S. budget deficit will remain above 7% of GDP annually before 2030, making it the economy with the highest deficit rate among all wealthy countries tracked by the institution. In contrast, the government debt burdens of Italy and Greece are expected to decline by the end of this century, as both countries strictly control their budget deficits.

By 2030, the government debt ratios of Italy and Greece are expected to show a downward trend, while the U.S. debt-to-GDP ratio will continue to rise. The Congressional Budget Office (CBO) projects that this upward trend will persist for decades.

Despite the U.S. holding the status of the global reserve currency and having borrowing capabilities far exceeding those of European countries, this turning point is still symbolically significant. Mahmood Pradhan, global macro head at Amundi Investment Research Institute, stated that this is a symbolic moment, as the CBO predicts that U.S. debt will continue to rise—this is the impact of long-term deficits.

Debt Trajectory Reversal: U.S. Up, Europe Down

According to data released by the IMF this month, the total government debt of the United States as a percentage of GDP is expected to rise more than 20 percentage points from its current level, reaching 143.4% by 2030. This broad debt metric includes both central and local government debt and has been lower than that of Italy and Greece since the beginning of this century.

Italy and Greece have long been warned by economists due to their weak public finance situations. The two countries were at the forefront during the Eurozone sovereign debt crisis from 2010 to 2012, with Greece requiring assistance and debt restructuring under the supervision of the IMF and the EU. However, the situation has now reversed, as these two European countries are expected to see a decline in their debt burdens by the end of this century through strict budget deficit control.

James Knightley, an economist at ING, pointed out, "Many American politicians and investors have somewhat underestimated Europe and its slow-growing, troubled economies, but when you see indicators like this, the discussion changes."

Trump Administration Failed to Turn the Tide

The U.S. federal deficit expanded rapidly during the Biden administration, despite the unemployment rate hovering near historical lows. The IMF's forecast indicates that officials believe the Trump administration made limited progress in addressing this issue.

U.S. Treasury Secretary Janet Yellen's economic advisor Joe Lavorgna stated this month that the Trump administration had made progress in cutting spending and increasing revenue through tariffs on U.S. imports. Lavorgna told the Financial Times that the overlooked fact is that much of the improvement in this year's fiscal deficit began in April.

Joe Gagnon from the Peterson Institute think tank stated, the political situation in the U.S. makes it difficult to see how anyone in power can reduce the country's massive deficit. "Democrats don't want to cut spending, and Republicans don't want to raise taxes," Gagnon said, "They all want to stick to this position "I don't know when this dynamic will change."

Italy's Fiscal Discipline Recognized

In contrast, despite struggling for a long time to curb its debt burden due to weak GDP growth—IMF predicts a growth rate of only 0.5% this year and 0.8% in 2026—the government of Italian Prime Minister Giorgia Meloni has won praise from foreign investors for its efforts to reduce Rome's budget deficit.

This year, Italy is expected to achieve a primary surplus of 0.9% of GDP, higher than the initially forecasted 0.5%. Rome anticipates a fiscal deficit of 3% of GDP this year, down from 8.1% when Meloni took office in 2022. This will allow Italy to exit the EU's excessive deficit procedure a year ahead of schedule.

DBRS Morningstar upgraded Italy's sovereign rating from "A low" to "BBB high" this month. Analysts noted that Italy's efforts to strengthen public finances benefited from over €200 billion in funds received from the EU's pandemic recovery plan. Carlo Capuano, deputy head of Scope Ratings' sovereign rating team, stated that Italy also benefited from a recovering labor market and improved tax collection, partly due to increased use of digital payments.

Sustainability in Doubt

Another indicator—net government debt (after offsetting financial assets)—shows that by the end of this century, the U.S. will still have a debt level about 10 percentage points lower than Italy. Gagnon stated that the net measure better reflects the debt burden of the U.S. because it is closer to the portion of debt that investors need to hold. "But this net measure is also on the rise," he said. The IMF expects Italy's net debt burden to start declining from 2028 but did not provide a net debt forecast for Greece.

Maury Obstfeld, former chief economist at the IMF and now a professor at Berkeley, stated that any forecast suggesting the sustainability of U.S. fiscal conditions "must be based on wishful thinking about future U.S. productivity growth, tariff revenues, demographic trends, or interest rates, or possibly all of the above."

Goldman Sachs' senior European economist Filippo Taddei commented on Italy, stating: "Fiscal policy continues to maintain a cautious stance." This stands in stark contrast to the U.S. Despite the U.S. having stronger borrowing capacity due to its status as the global reserve currency, the continuously rising debt trajectory is raising concerns about its long-term fiscal sustainability.