US President Barack Obama plans to address Americans later on the impasse in negotiations over a deal to avert a US debt default.
White House spokesman Jay Carney said in a Twitter message that Obama would address the nation at 9:00pm (1am Tuesday) on the ‘stalemate over avoiding default and the best approach to cutting deficits’.
US House Speaker John Boehner, the top Republican in Congress, has dismissed a plan offered by Senate Democrats to cut the deficit and raise the $14.3 trillion debt limit as full of ‘gimmicks’.
The Senate plan calls for $2.7 trillion in spending cuts, including $1 trillion in savings from winding down the wars in Iraq and Afghanistan.
Mr Boehner said the plan offered by Senate Democratic Leader Harry Reid failed to make any real changes in the government's spending and does not address the Medicare and Medicaid health programs for the elderly and poor or other benefit programs.
Earlier, the International Monetary Fund warned the US that it faces a ‘severe shock’ if the country's debt ceiling is not lifted soon.
But, with US politicians battling over a plan to slash the deficit, the IMF executive board called on authorities to only gradually reduce spending, to avert ‘a disruptive loss in fiscal credibility.’
‘The federal debt ceiling should be raised expeditiously to avoid a severe shock to the US economy and world financial markets,’ IMF economists said in a report on the US economy.
The debt limit was reached in mid-May and the US Treasury warns that it may be unable to pay its obligations by 2 August.
In an annual review of the world's biggest economy, the IMF economists criticised deficit-reduction plans proposed by the Obama administration and the Republican majority in the House of Representatives, citing a tepid economic recovery.
‘The official deficit reduction proposals could be too front-loaded given the cyclical weakness and, at the same time, insufficient to stabilise the debt by mid-decade.’
The IMF projected public debt at 99% of gross domestic product this year, rising to a ratio of 103% in 2012, higher than its June estimates.
‘A politically-backed medium-term framework that raises revenues and addresses long-term expenditure pressures should be the cornerstone of fiscal stabilization,’ it said.
‘The strategy should include entitlement reforms, including additional savings in health care, as well as revenue increases, including by reducing tax expenditures,’ the Washington-based institution said in a separate statement on the executive board's discussions of the review.
Executive directors called for the US to gradually unwind the extraordinary support provided the economy to deal with the 2008-2009 financial and economic crisis.
‘Spillovers from credible and gradual fiscal consolidation are limited,’ it said, while those from a loss of confidence in US debt sustainability ‘are universally large and negative.’