Lender calls on Washington to enact entitlement and tax reform
The IMF has lowered its forecast for growth in the United States and called it critical that Washington get its budget act together. In its bimonthly World Economic Outlook, the global lender revised downward its estimate of U.S. GDP for 2011 to 2.5% from 2.8% in its April forecast; it cut its 2012 forecast to 2.7% from 2.9%.
The IMF made headlines in April when it chastised the U.S. for having no plan to deal with its debt. The Washington-based institution reiterated that warning in its current report, specifying that “it is critical to immediately address the debt ceiling and launch a deficit reduction plan that includes entitlement reform and revenue-raising tax reform.”
Speaking in Sao Paolo, Brazil, after the report was issued, Jose Vinals, IMF Financial Counselor and Director, is quoted by Reuters as saying: “If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States.”
The unflattering comparison comes as amorphous budget talks continue inconclusively in the Senate Budget Committee and among Vice President Biden’s Gang of Six. The former has been tinkering with the tax code, but no reports indicate wholesale entitlement reforms can be expected.
The Gang of Six talks have a goal of reducing the deficit by some $4 trillion over the next decade or more, which is not likely to satisfy the IMF critics. The U.S. national debt hovers over $14 trillion, which is nearly equal to the entire annual output of the U.S. economy.
Treasury Secretary Timothy Geithner has warned that the U.S. will run out of funding for current obligations if Congress fails to reach a budget agreement by August 2. Republicans in Congress are reluctant to raise the ceiling without first procuring substantial budget cuts. What remains to be seen is whether an agreement will materialize, and whether any ensuing plan has sufficient credibility to forestall the punishment of international credit markets.