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IMF presses US to cut debt

• Yahoo News
The International Monetary Fund on Thursday urged the United States to rein in its ballooning budget deficit without putting the "modest" economic recovery at risk.

Amid jitters that high levels of unemployment may force a double dip recession, the IMF warned the slow US recovery would continue and that debt problems loomed.

"The central challenge is to develop a credible fiscal strategy to ensure that public debt is put -- and is seen to be put -- on a sustainable path without putting the recovery in jeopardy," an IMF report said.

The balance between spending to stimulate the economy and putting budgets in order has vexed countries around the world as the recovery has looked more and more precarious.

President Barack Obama has plowed nearly a trillion dollars into the economy to spur economic growth, exploding the US deficit to a level that many believe is unsustainable.

The IMF praised US efforts to cut the long-term deficit through health system reform, but said more needed to be done now.

"The authorities' commitment to halve the budget deficit by 2013, and intention to stabilize public debt at just over 70 percent of GDP by 2015 are welcome, although much remains to be done to achieve these aims."

At a recent summit of the Group of 20 leading economies in Toronto, Obama vowed to halve the deficit within three years.

But the IMF projected that the deficit will stand at 64 percent of gross domestic product this year, rising to just over 96 percent by 2020.

In June, the total US debt topped 13 trillion dollars for the first time in history, stoking a political furor over government spending.

Stemming the flow of red ink has become a contentious political issue in Washington, with Democrats and Republicans trading barbs about who is to blame.

The IMF also cautioned that the recovery would still be slow.

"While still modest by historical standards, the recovery has proved stronger than we had earlier expected," it said.

"The outlook has improved in tandem with the recovery, but remaining household and financial balance sheet weaknesses -- along with elevated unemployment -- are likely to continue to restrain private spending."

The IMF on Thursday raised its global growth forecast for this year despite renewed financial turbulence stemming from a European debt crisis that has sharply raised potential risks.

The fund projected the world will grow by 4.6 percent, up from its 4.2 percent forecast in April, reflecting "stronger activity" during the first half of 2010 and expectations of fiscal action, especially in Europe.

In 2010, the United States, the world's largest economy, was expected to grow by 3.3 percent, the eurozone by 1.0 percent and developing Asia by 9.2 percent.

China and India were forecast to lead Asian growth with rates of 10.5 percent and 9.4 percent respectively.

 

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