IMF to US: Cut out the "ill-designed" budget cuts


IMF Managing Director Christine Lagarde on December 6, 2011.



The International Monetary Fund (IMF) called for the US government to retract sweeping federal budget cuts it called "excessively rapid and ill-designed" on Friday. 

The sequester, a deficit reduction plan that began earlier this year, could stall economic growth, the IMF said. The group had forecasted US growth by about 1.9 percent in 2013, but added it could grow an additional 1.75 percentage points if the US changed its fiscal policy.

Back in April the IMF lowered its growth forecast from 3.0 percent to just 2.7 percent, with IMF Managing Director Christine Lagarde saying the group had "assumed that the sequestration would be phased out."

The annual report stated the "US recovery has remained tepid over the past year, but underlying fundamentals have been gradually improving." The IMF then warned lawmakers "the longer-term debt profile remains unsustainable."

The IMF recommended the cuts should be replaced with new revenue and savings from entitlement programs. "Despite the slowdown in growth rates over the past few years, spending on major health-care programs and Social Security, absent additional reforms, is expected to increase by two percentage points over the next decade," the IMF said, which would increase the debt ratio.  

"The IMF's advice is to slow down, but hurry up: meaning slow the fiscal adjustment this year - which would help sustain growth and job creation - but hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability," said Lagarde.