The U.S. is facing an increasingly worrisome debt crisis, with corporate defaults on the rise, the International Monetary Fund (IMF) predicted.

Business Insider reported that the IMF sounded alarm with the U.S.’s fiscal situation as the “most worrying” among all countries globally. This statement was made by the IMF’s research director, Pierre-Olivier Gourinchas, during a recent press briefing.

The concerning state of U.S .debt is largely due to the swift rate of government spending, which has led to a $1.5 trillion deficit in just the first 11 months of the fiscal year, based on an estimate from the Brookings Institution.

IMF Fiscal Affairs director, Vitor Gaspar, in an interview with Bloomberg, further emphasized the severity of the situation, stating that U.S. deficits are elevated and appear to be persistent.

“Under unchanged policies, debt dynamics in the US are very unfavorable. The perpetuation of current policies entails an unsustainable fiscal path,” he said.

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Federal debt in the U.S. exceeded $33 trillion for the first time this year, equating to around 121% of the 2022 GDP. Researchers at Penn Wharton School predict that this situation might worsen in the future, with the possibility of the US defaulting on its debt within 20 years.

Simultaneously, interest rates are at their highest level since 2001 due to the Federal Reserve’s vigilant stance on inflation. Goldman Sachs strategists forecast that this could push the borrowing costs on US debt to a new record by 2025.

Moreover, increased rates could cause distress for borrowers, with over $2 trillion of corporate debt due to maturity in 2024 alone. Defaults on high-yield bonds are expected to reach between 4.5% and 5% this year, as estimated by Fitch Ratings, a significant increase from the 0.7% default rate recorded in 2021.

Charles Schwab estimates peak defaults and bankruptcies could begin as early as the first quarter of 2024, as higher borrowing costs strain financially weaker firms.

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