17 Jun 2013

IMF calls US budget cuts ill-designed

6:14 am on 17 June 2013

The International Monetary Fund has urged the United States to repeal the huge federal budget cuts introduced this year.

The IMF said the deficit reduction programme would be a drag on growth this year and denounced the cuts as excessively rapid and ill-designed, the BBC reports.

Not only would spending cuts hurt in the short term, but "indiscriminate" reductions in education, science and infrastructure spending could reduce potential growth in the medium term, it said.

"These cuts should be replaced with a back-loaded mix of entitlement savings (related to healthcare and pensions) and new revenues, along the lines of the administration's budget proposal."

The IMF forecast growth of 1.9% for 2013, but said it could be as much as 1.75 percentage points higher without the rapid tightening of fiscal policy.

However it added that the overall US economy was improving, and said that while the recovery had been tepid, overall fundamentals had been gradually getting better.

The IMF pointed to a rebound in house prices and construction activity, stronger household balance sheets, an improvement in the labour market, and strong corporate profitability.