The slowing U.S. economy and mounting uncertainties from the Persian Gulf crisis have combined to cloud the short-term outlook for reducing the federal budget deficit, the Congressional Budget Office said.
In its interim report on the federal budget, the CBO said Thursday the total federal deficit will rise from $200 billion this year to $250 billion next year and 1992 before easing to roughly $170 billion in 1993, $60 billion in 1994 and $30 billion in 1995.Robert Reischauer, the office's director, told the House Budget Committee that the short-term budget outlook has worsened since the Aug. 2 invasion of Kuwait by Iraq. But the long-term outlook has improved.
"Even allowing for some additional deterioration in the economic outlook, by fiscal year 1995, the total federal deficit is likely to fall below $100 billion for the first time in 14 years and below 1 percent of (gross national product) for the first time in 20 years, Reischauer said.
While the long-term prospects for the deficit appear healthy, the short-term reality will be dominated by a sluggish economy, Middle East uncertainty and the continuing savings and loan bailout.
The government's effort to protect depositors of failed thrifts and sell the assets of those institutions will continue to add to federal borrowing requirements in the next few years.
"Over the next two years, massive spending to resolve insolvent savings and loan institutions will keep the deficit at record levels," Reischauer said.
The CBO projected that federal spending on deposit insurance will increase from $58 billion this year to $91 billion next year and $107 billion in 1992 before dropping sharply in 1993.
The CBO budget forecast was based on economic assumptions developed in mid-October. The assumptions differ significantly from those of the previous forecast, made in July, by factoring for slower GNP growth and higher inflation.
"Many of the changes from last summer's forecast reflect the effects of the sharp increases in the price of imported oil that resulted form Iraq's invasion of Kuwait last August," Reischauer said.
The CBO plans to present its next economic and budget projections in late January. That forecast, Reischauer said, is likely to show further economic weakness.
"Since October the economic landscape has been clouded by the persistence of high oil prices, weak real estate markets and problems with the balance sheets of many banks and corporations," Reischauer said.