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 Ian.talley@dowjones.com