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2011-04-13 08:47:17
Andrew Walker By Andrew Walker Economics correspondent, BBC World Service
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.
The US federal deficit currently stands at $1.4 trillion ( 858bn) and is
expected to reach $1.5 trillion in the current fiscal year.
Deficit reduction
Speaking at the World Economic Forum meeting in Davos in January US treasury
secretary Timothy Geithner set out the US government's position on the federal
deficit.
Florida protesters March 2011 Efforts by some US states such as Florida to
tackle their deficits have been met with opposition
"There is a much greater recognition across the US political system that our
fiscal position is unsustainable in the long-run," said Mr Geithner.
"I know there are people who would like to make very deep cuts that would
undermine the recovery.
"You got to make sure that you don't hurt the recovery and take so much risk
that you damage the early expansion by shifting too prematurely to substantial
restraints.
"We're not going to let that happen. There are some people who like to move...
very quickly to do very deep cuts in spending, but it is not the responsible
way to do it."
Competitive currency
The IMF's twice-yearly assessment of the global economy also 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.