4 Oct 2013

IMF head issues warning on US debt

6:15 am on 4 October 2013

The head of the International Monetary Fund, Christine Lagarde, has warned that a political impasse over the US government's finances could seriously damage the entire global economy.

The government closed non-essential operations on Tuesday after Congress failed to strike a deal on a new budget.

The shutdown has left more than 700,000 employees on unpaid leave and closed national parks, tourist sites, government websites, office buildings, and more.

However another crisis is looming over the government's borrowing limit. On 17 October, the American government will run out of cash to pay its bills unless the debt ceiling is raised, the BBC reports.

In a speech at the George Washington University in Washington, Ms Lagarde said failure to raise the debt ceiling would be a far worse threat to the global economy than the current shutdown.

Ms Largarde says it is critical this is resolved as soon as possible.

Her comments were echoed by the US Treasury which said a debt default could lead to a financial crisis as bad as 2008 or worse.