The U.S. federal budget deficit for fiscal year 2024 (October 2023 to September 2024) is the largest ever, excluding fiscal years 2020 and 2021, when COVID-19 was spreading. According to Bloomberg and Reuters on the 18th, the U.S. Treasury Department announced that the fiscal year 2024 budget deficit would be $1.833 trillion, about 8% more than the previous year’s $1.695 trillion. This is the same level as the estimate released by the Congressional Budget Office (CBO) earlier this month.
The U.S. fiscal year deficit was less than $1 trillion before the COVID-19 outbreak, but it soared to $3.132 trillion in 2020 and $2.77 trillion in 2021. It then decreased to $1.37 trillion in 2022 but has since continued to increase. The fiscal deficit for 2023 and 2024 will reach 6.2% and 6.4% of GDP, respectively. It is unusual for this number to exceed 6% in the absence of an economic recession or global war.
The increase in interest expenses due to high interest rates and government program spending led to the expansion of the deficit. Interest expenses on debt increased by about 29% year-on-year to about $254 billion, exceeding $1 trillion for the first time ever, recording about $1.133 trillion. This is 3.93% of GDP, the highest level since 1998 (4.01%). Social Security (old age pension) spending increased 7% year-on-year to $1.52 trillion, Medicare (medical insurance for the elderly) spending increased 4% to $1.5 trillion, and defense spending increased 6% to $826 billion.
With the presidential election on the 5th of next month approaching, with Republican candidate former President Donald Trump and Democratic candidate Vice President Kamala Harris putting forward astronomical cost pledges, some are pointing out that it will not be easy to reduce the US fiscal deficit. The Committee for a Responsible Federal Budget (CRFB), a nonpartisan nonprofit organization, has projected that if former President Trump and Vice President Harris fulfill their pledges, the U.S. deficit will increase by an additional $7.5 trillion and $3.5 trillion over the next 10 years, respectively.
The Treasury Department said that if the figures are adjusted for factors such as President Joe Biden’s student loan forgiveness policy, which was blocked by the Supreme Court, the fiscal year 2024 deficit will be reduced by about 4%. Treasury Secretary Janet Yellen said that the Biden administration’s budget plan could reduce the deficit by about $3 trillion in the future by increasing corporate and wealthy taxes. Meanwhile, the Treasury Department’s announcement came amid recent concerns from the International Monetary Fund (IMF) that global public debt, including in the U.S. and China, would exceed $100 trillion for the first time ever by the end of this year.
The IMF, in a recent report ahead of the IMF-World Bank (WB) Annual Meetings to be held in Washington D.C. on the 21st, predicted that the global public debt to GDP ratio would reach 93% by the end of the year and 100% by 2030. IMF Managing Director Kristalina Georgieva warned that the future of the global economy could be dark due to low growth and high debt issues, saying, “(Economic) shocks will definitely come and may come sooner than expected.”
In the case of the UK, which is due to announce its budget for next year at the end of this month, public debt was estimated at 100.0% of GDP as of the end of August, and the IMF previously warned the UK that it risks facing market backlash if its debt problem is not stabilized. Moody’s, a credit rating agency, is scheduled to release a credit rating report on France around the 25th, and as France’s credit rating is currently higher than that of its competitors, the market is also watching the possibility of a downgrade in France’s credit rating outlook.