IMF worries over US debt ceiling

Failure by US law makers to agree a deal to raise the government's borrowing limit could deliver a "severe shock" to its fragile recovery and to the global markets, the International Monetary Fund warned yesterday.

In its annual review of the US, the IMF said the key challenge the nation faces is finding a way to stabilise its debts by mid-decade without derailing growth.

The US Congress needs to agree to raise the $14.3 trillion ceiling on the nation's debt by 2 August to avoid a default – something Republicans have refused to do without budget cuts and a ban on tax rises.

The IMF said a failure to raise the ceiling in time could lead to a downgrade in the US's coveted AAA debt rating and send interest rates soaring.