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US budget deficits to expand more than expected in decade

US budget deficits to expand more than expected in decade

Mubasher: Federal budget gaps are set to swell much more than expected over the upcoming decade, with budget agreement legislators and the White House clinched last month, the Congressional Budget Office (CBO) said on Wednesday.

Due to the impact of the higher federal spending reflected in the two-year budget deal, which was partially offset by expected lower interest rates, the CBO raised its projections for deficits by $809 billion to $12.2 trillion between 2020 and 2029.

The new budget deal, which increased spending by around $320 billion over the two years, well above the previously implemented limits, would contribute by $1.7 billion to deficits over the next ten years, the agency estimated.

This assumes that federal spending would continue to be raised at the inflation rate after 2021.

Spending on disasters and border security this year raised expected gaps by $255 billion for the next decade, with the assumption of sustained increase.

Moreover, the CBO slashed its forecasts for US interest rates, which would in turn trim interest costs on government debt by $1.4 trillion in the next 10-year period.

Deficits as a part of gross domestic product (GDP) are estimated to average 4.7% over the next decade, compared with the 4.3% average expected last May.

On a broader scope, government debt as a share of the US economy would rise to 95% in 2029, compared with 79% in 2019 and May’s forecast of 92%, the CBO said.