The International Monetary Fund has warned of severe consequences if the United States defaults on its debt, ahead of a rapidly-approaching deadline for the country to raise or suspend its borrowing limit.
"Our assessment is that there would be very serious repercussions not only for the US but also for the global economy should there be a US debt default," IMF Spokesperson Julie Kozack told reporters, encouraging all parties to urgently resolve the matter.
Republicans and Democrats remain sharply divided over the debt ceiling, with Republicans in Congress insisting that US President Joe Biden's administration agree to significant budget cuts in exchange for support to lift the limit before the country runs out of money to pay its existing bills.
Democrats have been calling for a "clean" increase of the borrowing limit, accusing Republicans of using extreme tactics to try and push their political agenda ahead of the so-called "X-date" – the point at which the US will be unable to meet its financial obligations.
The IMF warned Thursday of the potential for higher borrowing costs, broader global instability and economic repercussions in the event of a US default.
"We have seen a world in the last few years that has been affected by many shocks, so we would want to avoid those severe repercussions," Kozack said.
“Discussions in the US are taking place at a time that is very difficult for the global economy,” she said. “Our assessment is that there would be very serious repercussions, not only for the US but also for the global economy, should there be a US debt default. And we strongly encourage the parties in the US to come together to reach a consensus to urgently address this matter.”
US Treasury Secretary Janet Yellen this week warned a default “would spark a global downturn” and “would also risk undermining US global economic leadership and raise questions about our ability to defend our national security interests.”
The lifting of the debt ceiling has historically been seen as a routine affair, given that it involves raising money to pay for spending commitments already made by Congress.
When Republicans won a narrow majority in the House of Representatives during last year's midterm elections, the right wing of the caucus insisted incoming speaker Kevin McCarthy tackle the ballooning US debt in exchange for their support.
But with the Biden administration refusing to negotiate on the debt ceiling, a stand-off has arisen just weeks before the US risks running out of money to pay its obligations.
Biden met with McCarthy earlier this week in a failed attempt to find common ground on the issue.
"Default is not an option," Biden said after the talks had concluded, while McCarthy told reporters he "didn't see any new movement" in the meeting, which was also attended by the Senate majority and minority leaders and the minority leader of the House.
The increase in interest rates so far has already hurt some countries, especially those in debt distress and facing vulnerabilities, Kozack said. The IMF estimates that 15 percent of low-income countries are in debt distress and 45 percent are at risk, and already sees global growth over the next five years as the weakest in more than three decades.