Thaindian News

Washington, Aug 3 (IANS) US policymakers should balance their efforts at immediate and medium-term fiscal adjustment to avoid negative impact on the fragile US economic recovery, the International Monetary Fund (IMF) said in a report.

US fiscal adjustment “may go too far in the near term and not far enough in the medium term”, the IMF said Thursday in its “2012 Spillover Report” examining the external effects of domestic economic policies from five systemically important economies (S5), comprising China, the US, the euro area, Japan and Britain, reported Xinhua.

“The worry here is of too sharp fiscal contraction in 2013 and, not enough — or ill defined — adjustment in the medium term, both with potential to disrupt economic activity and financial markets,” said the Washington-based global lender.

The IMF pressed the US to calibrate the near-term fiscal adjustment to the pace of economic recovery and set fiscal consolidation objectives in the medium term to improve its fiscal sustainability.

In the path of a still weak recovery, a sharp reduction in the deficit starting in January 2013 with Bush era tax cut provisions expiring and automatic spending cuts taking effect, a scenario dubbed as the “fiscal cliff”, would lead to fiscal contraction and slower economic growth, the IMF cautioned in the annual report.

The “fiscal cliff”, which stands in the way of US economic recovery, would have quite extensive” effects on the world economy, Ranjit Teja, deputy director of IMF’s Strategy, Policy and Review Department, Thursday told reporters during a conference call.

Earlier this week, US congressional leaders inked an agreement to extend the federal government funding for six months after it runs out by Oct 1, the start of the next fiscal year, but the agreement stopped short of listing long-term fiscal adjustment goals to slash the ballooning US public debt hovering at nearly $16 trillion.