Yesterday the International Monetary Fund issued a stern message to its largest shareholder, the United States. The head of fiscal affairs at the IMF said that the US lacks a credible strategy to stabilize its mounting debt.
In an unusually stern rebuke to its largest shareholder, the IMF said the US was the only advanced economy to be increasing its underlying budget deficit in 2011 at a time when its economy was growing fast enough to reduce borrowing.
The latest warning on the deficit was delivered as Barack Obama, the US president, is becoming increasingly engaged in the debate over ways to curb America’s mounting debt.
To meet the 2010 pledge by the Group of 20 countries for all advanced economies – except Japan – to halve their deficits by 2013, the US would need to implement tougher austerity measures than in any two-year period since records began in 1960, the IMF said. In its twice-yearly Fiscal Monitor, the IMF added that on its current plans the US would join Japan as the only country with rising public debt in 2016, creating a risk for the global economy.
Carlo Cottarelli, head of fiscal affairs at the Fund, said: “It is a risk that if it materialises would have very important consequences ... for the rest of the world. So it is important that the US undertakes fiscal adjustment in a way sooner rather than later.”
At the moment, the US has outlined less than half of the tax increases and spending cuts necessary to bring its public debt down in the medium term, the IMF calculated. “More sizeable reductions in medium-term deficits are needed and will require broader reforms, including to social security and taxation,” the IMF said.