IMF Report Calls for Balanced, Comprehensive Fiscal Reform Plan
Earlier this week, the International Monetary Fund (IMF) released its annual report The United States: 2011 Article IV Consultation, highlighting the need for the United States to enact a comprehensive fiscal reform plan that would stabilize and reduce our debt. The report states that “fiscal consolidation needs to proceed as debt dynamics are unsustainable and losing fiscal credibility would be extremely damaging for the United States and for the rest of the world,” while offering thoughts on what the United States' fiscal, financial, and monetary policies should look like going forward.
More specifically, the report offers many recommendations on how the U.S. should look to craft a framework for fiscal reform. Among the broader points:
- The most important priority of fiscal policy should be to stabilize the debt by mid-decade and then gradually reduce it
- Congress should explicitly endorse the medium-term fiscal objectives of any deficit-reduction framework
- Any deficit-reduction plan should include spending cuts, entitlement reforms and revenue increases
- More savings than what President Obama proposed in his February budget and April deficit-reduction framework will be necessary
- A debt “failsafe” mechanism could help keep fiscal consolidation on track, but should not be overly relied on (see here and here for more about debt enforcement mechanisms)
- Fiscal consolidation would have long-term benefits for the US and global economy, but should be carefully balanced to avoid disrupting a fragile recovery
The IMF is the latest group to voice support for a comprehensive approach: "A politically-backed medium-term framework that raises revenues and addresses long-term expenditure pressures should be the cornerstone of fiscal stabilization." As leaders in Washington debate raising the debt ceiling and reducing deficits, they must look to find a plan that would stabilize and then reduce our debt.