of the biggest concerns for international policymakers, with Canada warning this week it could fall into recession if Washington does not reach a deal to avoid the cliff.
The IMF said the U.S. economy could fall back into recession if Congress fails to avert the package of tax hikes and spending cuts.
The IMF also urged Washington to agree on a credible plan to reduce government debt, warning that failing to do so could exacerbate uncertainty, and could lead to a gradual erosion of the reserve currency status of the U.S. dollar and put upward pressure on Treasury bond yields.
While some progress has been made to address the euro zone crisis, the IMF urged Europe to present a road map for banking union, followed quickly by implementation. It also said euro zone countries facing high borrowing costs should implement fiscal adjustment plans and, if needed, request financial support from European emergency funds.
Spain is considering whether to ask for aid from the euro zone. Promises of help from the EU and the European Central Bank have brought Spain's borrowing costs down from unsustainable levels in the past few months.
The IMF said austerity in the euro zone's periphery countries risks becoming politically and socially untenable because fiscal and economic reforms will take years to complete. Countries like Greece, Portugal and Ireland are implementing IMF-EU supervised austerity packages in return for international aid.