U.S. Treasury dismisses IMF debt warning and 'messy' forecasting

Key points

• David Zervos, counselor to the Treasury Secretary, dismissed the IMF's debt warning and criticized its forecasting record.
• IMF Managing Director Kristalina Georgieva warned that strong U.S. growth won't make federal debt sustainable.
• Global debt servicing costs topped $365 trillion in the first half of the year, according to the article.

David Zervos, newly appointed counselor to the Treasury Secretary, said on Thursday that the International Monetary Fund should review its own forecasting record before criticizing U.S. fiscal policy. Zervos, a former Wall Street economist, made the comments in emailed remarks to CNBC.

His statement responded to IMF Managing Director Kristalina Georgieva, who warned on Wednesday at the IMF-World Bank annual meetings in Bangkok that strong U.S. economic growth would not be enough to put mounting federal debt on a sustainable path. Georgieva was reacting to U.S. Treasury Secretary Scott Bessent, who told CNBC in August that the U.S. could "grow our way out" of a rising debt-to-GDP ratio after government debt surpassed $40 trillion.

Zervos questions IMF forecasts

Zervos, formerly chief market strategist at Jefferies, said on Thursday that in 2008 the IMF's World Economic Outlook projected world growth at 3%, but a global contraction followed a year later. He also said the IMF was positive on Southeast Asia in 1997 before the collapse, very negative on Russia in 2022 before its growth barely dipped and then grew strongly, and very positive on Argentina after a $57 billion bailout before the country was in default again by 2020.

He added that the IMF's record includes missteps on Greece and the "transitory" call on U.S. inflation.

When we see pieces on the IMF, it's good to remember how messy their forecasts have been in the past

— David Zervos

Debt warnings and global concerns

Many economists warn that rising U.S. interest payments and a high deficit have increased the risk of an unsustainable debt spiral, though they are divided on whether the U.S. could face a true fiscal crisis. Georgieva has issued similar warnings to other major economies, telling CNBC on Oct. 7 that her message to France was to get its house in order.

Other institutions are also raising alarms about the cost of servicing global debt, which reached $365 trillion in the first half of the year. The Institute of International Finance argued in a September report that a "vicious cycle between elections and short-term quick fixes" to debt challenges was reducing the ability to spend on public services.