IMF urges US Congress to raise debt limit

The US government hit its legal borrowing
limit of $14.29 trillion on May 16
© AFP/File Shawn Thew

SAO PAULO (AFP) – The International Monetary Fund on Friday joined calls for the US Congress to raise the country’s debt limit, warning that failure to act would risk a major global market upheaval.

“For the United States, it is critical to immediately address the debt ceiling and launch a deficit reduction plan that includes entitlement reform and revenue-raising tax reform,” the IMF said in an update of its April forecasts issued in Sao Paulo.

The US government hit its legal borrowing limit of $14.29 trillion on May 16. The Treasury has taken extraordinary technical measures to avert a debt default, but says it will run out of maneuvering room by August 2.

The issue of raising the debt limit is bogged down in Congress, where President Barack Obama’s Democrats are at loggerheads with Republicans, who control the House of Representatives.

“Should Congress prove unwilling to raise the debt ceiling, there would be a risk of a major adverse market reaction,” the IMF said.

In addition, keeping net debt issuance at zero “would require unrealistically large spending cuts during the remainder of this year.”

The Obama administration and Federal Reserve chairman Ben Bernanke have repeatedly called on lawmakers to end the impasse.

Republican lawmakers are seeking trillions of dollars in spending cuts and oppose tax increases to put the economy back on a sustainable track after the worst recession in decades.

Democrats are open to spending cuts as long as they do not harm the social safety net, such as social security and Medicare programs, and keep the weak economic recovery on the rails.