US must tackle government deficit, says IMF report

There is an urgent need for the US to tackle the deficit in the government's finances, according to the International Monetary Fund (IMF).

The organisation has warned that the size of the deficit risks creating instability in the financial markets.

However, the global economic recovery is gaining strength, the IMF said.

In developed economies the private sector is increasingly replacing government spending in driving that recovery, it added.

This reduces the risks of a renewed recession as governments continue to curb their spending, the IMF's Fiscal Monitor said.

However the report warned that developed economies still needed to watch levels of government debt.

"Among the advanced economies, the United States, in particular, needs to adopt measures that would allow it to meet its fiscal commitments," the IMF warned.

"Market concerns about sustainability remain subdued in the United States, but a further delay of action could be fiscally costly, with deficit increases exacerbated by rising yields," it said.

Competitive currency

The twice-yearly assessment of the global economy suggested that risks were building in emerging countries.

It said some of them should allow their currencies to rise, which would help contain inflation by making imports cheaper.

There was a strong implication that China is one country that the IMF has in mind.

A stronger and therefore less competitive currency is something that many other countries would like to see in China.

India is forecast to continue growing very strongly in the next two years, though not as rapidly as in 2010, when the IMF's data shows it having grown even faster than China.

source : bbc.co.uk