The Fragile Interdependence: Implications of the U.S. Debt Ceiling Crisis on Global and Emerging Economies

The U.S. defaulting on its debt obligations would have “very serious repercussions” for both the American and global economies, according to the International Monetary Fund (IMF).

At a press conference on Thursday, Julie Kozack, the director of communications for the IMF, was asked about “the knock-on effects” of “the debt ceiling crisis that is happening now between the White House and Congress, with the prospect of a potential default as early as June 1” on the global economy, particularly for emerging markets.

She replied, “First, it’s important to note that these discussions in the U.S. are taking place at a time that is very difficult for the global economy,” adding:

Our assessment is there would be very serious repercussions, not only for the U.S. but also for the global economy should there be a U.S. debt default. And we strongly encourage the parties in the U.S. to come together to reach a consensus to urgently address this matter.

She was later asked further on “what some of those consequences might be for other countries, particularly developing economies.

The IMF director said: “One of the repercussions, of course, that we would see, we could potentially see, is higher interest rates, some broader instability and economic repercussions.” Emphasizing that “we have seen a world in the last few years that have been affected by many shocks,” she stressed:

So, we would want to avoid those severe repercussions, and for that reason, we, again, are calling on all of the parties to come together, reach consensus, and resolve the matter as quickly as possible.

source