IMF Anticipates Reduction in US Fiscal Deficit by 2025 Attributed to Tariffs

April 23, 2025 TruthUSA

In fiscal year 2024, the United States recorded a national deficit of $1.8 trillion, marking the largest deficit of this century aside from the years 2020 and 2021.

The International Monetary Fund (IMF) has indicated in an April 23 report that the tariff policies established during the Trump administration are anticipated to decrease the fiscal deficit for the United States in the current year.

A fiscal deficit, commonly referred to as a national deficit, arises when a government’s expenditures exceed its revenues in a given fiscal year.

According to the IMF, the general government fiscal deficit for the United States in 2024 accounted for 7.3 percent of GDP, and is projected to decrease to 6.5 percent by 2025, while noting that “the extent of the increase in tariff revenues remains highly unpredictable.”

The forecast depends on the assumption that the United States will gain from enhanced tariff revenues. Therefore, the recent 90-day suspension of reciprocal tariffs declared on April 2, along with other initiatives, may lead to “reduced revenue from imports.”

“In the absence of considerable policy changes, the medium-term outlook predicts that the deficit will decline to 5.6 percent of GDP, driven by a 0.7 percentage point increase in revenues,” the report asserts.

Conversely, the IMF warns that heightened tariffs could negatively influence U.S. economic performance, affect income taxes, and may negate some of the revenue increases anticipated from the tariff strategies.

Additionally, escalating debt levels will create further pressure on long-term interest rates and government financing costs, which will in turn influence the fiscal deficit.

The IMF observes, “Significant uncertainty and notable policy shifts are reshaping both economic and fiscal perspectives. Major tariff announcements by the United States, reactions from other nations, and exceptionally high levels of policy unpredictability are leading to worsened forecasts and increased risks.”

As reported on the Fiscal Data website managed by the U.S. Treasury, the deficit for the United States stood at $1.83 trillion for fiscal year (FY) 2024.

This represents the highest fiscal deficit since 2000, when ignoring the pandemic-related deficits of $3.13 trillion in 2020 and $2.77 trillion in 2021.

Notably, the deficit has already reached $1.3 trillion for fiscal year 2025, which spans from October 1, 2024, to September 30, 2025.

“Since 2001, the federal government has operated at a deficit annually. Since 2016, expenditures related to Social Security, healthcare, and interest on federal debt have surpassed the growth of federal revenues,” states the website.

“From FY 2019 to FY 2021, federal spending surged by approximately 50 percent in response to the COVID-19 pandemic.”

Economic Impact

On April 8, Fitch Ratings forecasted in a report that the fiscal impact of U.S. tariffs would be “mixed,” stating that they would not resolve the nation’s fundamental problems.

Positively, revenues derived from the tariffs are expected to contribute to reducing the budget deficit this year, according to their analysis.

Nevertheless, Fitch added, “We believe that the tariffs significantly increase the risk of a U.S. recession and limit the Federal Reserve’s capacity to further decrease interest rates due to the anticipated impact on prices.”

“A more pronounced economic downturn would put substantial pressure on non-tariff revenues and escalate spending through automatic stabilizers. Although these impacts would lag behind the immediate revenue boost from tariffs, we anticipate they will surface by 2026, accompanied by negative spillovers from financial market instability.”

In the April 2025 World Economic Outlook, the IMF projected the U.S. economy would grow by 1.8 percent this year, down from 2.8 percent in 2024.

Despite a 1 percentage point decline, the United States remains the nation with the fastest projected growth rate among developed economies, surpassed only by Spain’s anticipated growth of 2.5 percent for 2025.

The White House asserted in an April 2 fact sheet that the implementation of tariffs will enhance U.S. economic growth, referencing a 2024 economic analysis carried out by the Coalition for a Prosperous America.

According to the analysis, a 10 percent universal tariff on all U.S. imports, coupled with reductions in income tax, is projected to generate $728 billion in economic growth and create 2.8 million jobs.

“The tariff is expected to yield around $263 billion, which could be allocated to offer a meaningful $1,200 tax refund to lower-income families and refunds ranging from 3 percent to 4 percent of income for middle-income households,” the analysis added.

“Household incomes are expected to increase by 5.7 percent, which equates to $4,252, leading to improved living standards for workers and compensating for a minor initial price impact of half a percentage point annually.”

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