Washington: The International Monetary Fund urged US lawmakers Wednesday to raise America's borrowing limit. It warned that inaction could lead to a spike in interest rates that would harm the US economy and world financial markets.
The debt limit is the amount the government can borrow to help finance its operations. The United States reached its $14.3 trillion (Dh52.53 trillion) borrowing limit in May. It is at risk of defaulting on its debt if it doesn't raise that limit by August 2. President Barack Obama and Republican lawmakers have been at odds on a plan to raise it.
The borrowing limit should be increased "expeditiously to avoid a severe shock to the economy and world financial markets," the IMF said in its annual report on the US economy. Republicans are insisting on substantial spending cuts before they agree to an increase, including cuts in Medicare. Democrats say they want any deal to include some tax increases.
Risks to economy
The IMF also warned in its annual report that rising US budget deficits pose a risk to the economy. But it advocates a long-term strategy for reducing those deficits, not steep immediate cuts or tax increases. Cutting the deficit too quickly could slow the weak US recovery, the fund said.
The US economy will grow this year and next but at a weak pace, the IMF forecasts. The fund projects the economy will expand 2.5 per cent this year and 2.7 per cent in 2012.
