The International Monetary Fund urged the United States on Wednesday to raise the nation’s borrowing limit, warning that inaction could lead to higher interest rates that would harm the domestic economy and world financial markets.

The debt limit is the amount the government can borrow to help finance its operations. The United States reached its $14.3 trillion borrowing limit in May. It is at risk of defaulting on its debt if it does not raise that limit by Aug. 2. President Obama and Republican lawmakers have been at odds on a plan to raise it.

The I.M.F. also warned in its annual report on the American economy that rising budget deficits posed a risk to the economy. But it advocated a long-term strategy for reducing those deficits, not steep immediate cuts or tax increases. Cutting the deficit too quickly could slow the weak recovery, the fund said.

The American economy will grow this year and next but at a weak pace, the I.M.F. forecast. The fund projected that the economy would expand 2.5 percent this year and 2.7 percent in 2012. Consumers are still paying off debts, which will reduce their buying power, and budget cuts at the federal, state and local levels would also reduce demand.

The I.M.F.’s forecast is below recent projections by the Federal Reserve. The Fed expects the economy will grow by as much as 3.3 percent next year. Many private forecasters, however, are more pessimistic and closer to the I.M.F.’s view.

The I.M.F. has 187 member nations and lends money to countries with troubled finances. It also regularly reviews major national economies to look for signs of trouble that could affect the world economy.

Article based on: NYTimes.com

Tags: Debt, economy, International Monetary Fund, obama, united states, world financial markets

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