IMF: government spending cuts are burden on US economy
Washington - Automatic spending cuts implemented by the US government are slowing the growth of the world's largest economy and should be replaced by a more balanced approach to deficit reduction, the International Monetary Fund (IMF) said Friday in its
Across-the-board cuts, known as the sequester, are reducing the deficit at a very rapid rate of 2.5 per cent a year, IMF chief Christine Lagarde said at a news conference at the Washington-based fund.
However, more targeted saving in entitlements, such as pensions, paired with new revenues, would be preferred to the sequester, she said.
The automatic cuts that went into effect in March – after politicians were unable to agree on an alternate plan - to lower the US government debt were poorly conceived, the IMF said in its annual report.
"The automatic spending cuts not only exert a heavy toll on growth in the short term, but the indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth," the report stated. "These cuts should be replaced with a backloaded mix of entitlement savings and new revenues."
The IMF projected US economic growth of 1.9 per cent this year, unchanged from its April estimate. That rate would be lower than last year's 2.2-per-cent growth rate.//DPA
