IMF: U.S. Deficit Largest Among Major Economies

The U.S. is set to have the largest budget deficit of major developed economies this year and should narrow it now rather than face tough adjustments in the next two years, the International Monetary Fund said.

The U.S. shortfall will reach 10.8 percent of its gross domestic product this year, ahead of Japan and the U.K., the Washington-based IMF said in a report released today. It estimates that President Barack Obama will need to cut the deficit by 5 percentage points of GDP in the next two fiscal years, the largest adjustment in “at least half a century,” to meet his pledge of halving it by the end of his four-year term.

“Market concerns about sustainability remain subdued in the U.S., but a further delay of action could be fiscally costly, with deficit increases exacerbated by rising yields,” the IMF wrote in its Fiscal Monitor report, published several times a year to analyze public finance development.

The IMF recommended “a down payment” in the form of deficit reduction this year that would make the government goal “compatible with a less abrupt withdrawal of stimulus later.”

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