WASHINGTON--The U.S. should cut its deficit by an amount valued at roughly one to one-and-a-half percent of gross domestic product a year to excavate the country's dangerous debt pile without burying growth, the International Monetary Fund's top economist said Friday.
IMF Economic Counsellor Olivier Blanchard said the tax deal reached earlier this week was an important step toward putting the country's debt back on a healthy path. But "most of the work remains to be done," he said in a CNBC television interview.
"We should be cutting the deficit slowly, steadily...every year for a while," through higher revenue and lower budgets, Mr. Blanchard said. Cutting the deficit at a rate of 1% to 1.5% of GDP a year would still allow the economy to expand, he said. Moving faster would "kill growth," he added.
The top fund economist said a credible deficit-cutting program would also spur the economy by dispelling uncertainty that is holding private-sector investment back.
"If you could clarify this, I suspect uncertainty would disappear, and then private economy would actually do quite well," Mr. Blanchard said.
Rating companies have warned the U.S. risks further cuts to its credit status, moves the IMF cautions could cause a sudden jump in borrowing costs for the country and erode the dollar's position as the world's reserve currency.
The IMF counselor said while 2012 represented a "sea change" in Europe's response to its debt crisis, and as euro markets appear to be sanguine, the fund is concerned about the lack of growth.
"What's worrisome is the real economy, which is what we really care about, is doing poorly," he said.
Still, Mr. Blanchard said he didn't expect any major adjustments in the IMF's global economic outlook for the year.
Write to Ian Talley at [email protected]