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IMF Urges Repeal of Large US Government Spending Cuts

International Monetary Fund Managing Director Christine Lagarde speaks during a news conference at IMF headquarters in Washington, D.C., June 14, 2013.
The International Monetary Fund is urging the United States to repeal large government spending cuts from earlier this year, saying they are a drag on economic growth.

In its annual review of the world's largest economy, the IMF said Friday that the reduction in the U.S. budget deficit in 2013 has been "excessively rapid and ill-designed." The IMF said the cuts, known as the sequester, should be replaced by longer-term reductions in government spending programs, as well as higher taxes.

Washington cut the federal budget by $80 billion in March after U.S. President Barack Obama and his Republican opponents in Congress were unable to agree on an alternative plan.

Despite the IMF's concerns, the Washington-based agency says the overall U.S. economy is improving. IMF chief Christine Lagarde said there are signs that the U.S. recovery is "gaining ground."

"In terms of outlook, we see that the recovery in the United States of America is gaining ground and becoming more durable. The housing market, the household balance sheets and the labor markets are generally doing better," said Lagarde. "The private sector is leading and easing financial conditions have helped; however, the economy has a way to go before it returns to full strength. Unemployment has fallen, but is still too high at about 7.6 percent and the effect of the sequester and deficit reduction more generally are already affecting the economy.''

The IMF says it expects U.S. economic fortunes to slow this year, down to 1.9 percent from 2.2 percent growth last year, before accelerating in 2014.

But the Washington-based agency said the American economy would have advanced this year by as much as one and three-quarters of a percentage point more if the sequester did not go into effect.

The American economy has been recovering sluggishly from the 2009 recession, and its chronic government budget deficits are declining.