The International Monetary Fund (IMF) said today it is urgent for the US Congress to approve an increase in the $14.3 trillion (€9.94 trillion) debt ceiling.
Republicans and Democrats are preparing rival debt-ceiling plans after they were unable to break a partisan stalemate over the weekend. The Treasury Department says US borrowing authority will end on August 2nd unless Congress acts.
The 24-member IMF board "highlighted the urgency of raising the federal debt ceiling and agreeing on the specifics of a comprehensive medium-term consolidation plan," according to an IMF statement on the US economy.
"With a well-defined, credible multiyear framework in place, the pace of deficit reduction in the short run could be more attuned to cyclical conditions.
"The deficit reduction plan will need to include both changes to entitlement programs and revenue-enhancing measures," the staff of the Washington-based lender said in a separate report on the United States.
The staff also said a fiscal strategy can include savings in health care and "reducing tax expenditures". Unfavourable fiscal outcomes "could take the form of a sudden increase in interest rates and-or a sovereign downgrade if an agreement on medium-term consolidation does not materialise or the debt ceiling is not raised soon enough," the IMF staff said.
"These risks would also have significant global repercussions, given the central role of US Treasury bonds in world financial markets," the IMF said, adding: "Directors agreed that placing public debt on a sustainable path is critical to the stability of the US economy, with positive spillovers to other countries."
Overall, the lender said the US outlook is for "sluggish private domestic demand" while the unemployment rate "has declined only modestly from its recent peak."
Bloomberg