IMF welcomes US debt and deficit pact

IMF chief Christine Lagarde has applauded the US plan to raise its debt ceiling and cut its deficit signed, but called for US finances to be placed on "a sustainable path" with new revenues.

IMF chief Christine Lagarde has applauded the US plan to raise its debt ceiling and cut its deficit signed, but called for US finances to be placed on "a sustainable path" with new revenues.

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"We welcome the agreement to raise the US government's borrowing limit and cut the budget deficit," Lagarde, managing director of the International Monetary Fund, said in a statement on Tuesday.

"By reducing a major uncertainty in the markets and bolstering US fiscal credibility, this agreement is good for both the US and the global economy," she said.

"Raising the debt ceiling means a severe economic disruption has been avoided, and the accompanying deficit reduction deal is an important step toward fiscal consolidation."

She called the planned spending cuts "appropriately phased" to avoid undermining already weak economic growth.

However, she added, policy-makers need a plan with "clear medium-term debt and deficit objectives."

"Putting public finances on a sustainable path will entail identifying further savings in entitlement spending as well as new revenues," Lagarde said.

The comments came shortly after President Barack Obama signed into law the measure lifting the $14.3 trillion US debt limit by up to $2.4 trillion while cutting at least $2.1 trillion in government spending over the next decade.

The plan serves up cuts in many areas, but does not increase government revenue, nor does it address long-term funding challenges to massive government retirement and health care programs for the poor and elderly.