Ahead of the Bell: Budget deficit

WASHINGTON (AP) - The federal budget deficit for April likely widened but the imbalance for the first seven months of this budget year could show an improvement over the same period a year ago.

Economists surveyed by Thomson Reuters are predicting that the deficit for April total $30 billion, up by 44 percent from the $20.9 billion imbalance in April 2009.

If the forecast for April turns out to be accurate, that would leave a deficit through the first seven months of the budget year at $747 billion, about 7 percent lower than a year ago.

Much of the improvement stems from how the government is accounting for the losses from the $700 billion financial bailout. The administration has slashed the estimate of total losses from the financial rescue effort by $115 billion.

While reducing the bailout costs, the administration has not trimmed its estimate for the overall deficit this year, which it is still putting at $1.56 trillion. That would surpass the current record holder, the $1.4 trillion deficit set in 2009.

However, many private economists believe that the deficit for this year will come in around last year's $1.4 trillion in red ink. The administration will release its revised estimate this summer when it issues a mid-session review of the budget. The current budget year ends on Sept. 30.

Already, the administration has cut expectations for how much it will need to borrow this year, announcing last week that it expected borrowing would total $1.459 trillion for the current budget year, down 18.3 percent from last year's record of $1.786 trillion.

The better economy is helping to slow growth in spending and the improvement in the financial system means that banks are now paying back the money they received last year.

The soaring deficits have become a political challenge for the Obama administration. The administration is promising that once the economy is on a sustained rebound with unemployment coming down, it plans to aggressively attack the budget deficits.

The president has appointed a commission that is scheduled to produce a report by year's end on what spending cuts or higher taxes, or both, are needed to control future deficits.

At the moment, the administration is projecting that next year's budget will remain above $1 trillion and will never fall below $706 billion for any year over the next decade. That means the government would pile up an additional $8.5 trillion in debt over that period that will have to be financed.

So far the government has been able to pay low interest rates on the borrowing it has done because foreign investors still see U.S. Treasury securities as a haven in times of turmoil, something that was apparent last week when global markets were hit by fears over an expanding debt crisis in Europe.

Officials in China, the country that is the largest foreign holder of U.S. debt, have said it will be important for the administration to put together a credible plan for getting control of future deficits.