US on track to cut deficit by 40% in 2013

The US budget deficit will fall to $642 billion this year from $1.1 trillion in fiscal 2012, helped by surging revenues and repayments from housing agencies rescued in the 2008 crisis, the Congressional Budget Office forecast Tuesday.

That was more than $200 billion lower than the deficit projected by the CBO in February.

The decline to the smallest US fiscal shortfall since 2008 was "mostly as a result of higher-than-expected revenues and an increase in payments to the Treasury by Fannie Mae and Freddie Mac."

The two mortgage giants, put under government control in 2008 as they neared collapse, have since recovered profitability and are paying dividends on stock held by the government.

The latest CBO estimates take into account the severe automatic "sequester" spending cuts that began on March 1, aimed at slicing $85 billion from expenditures through the end of September.

The CBO estimated the US deficit would fall to 4.0 percent of gross domestic product compared with 7.0 percent in 2012.

Even as the budget deficit is narrowing quickly, the CBO said the country's debt ceiling would likely need to be raised by October or November to keep funding the government.

By congressional law, the US Treasury will be blocked from borrowing any additional money to fund the deficit after May 18. The Treasury has said it has special measures it can take to manage under the ceiling for several months, at least September.

Congressional Republicans, battling the White House over how to close the deficit, have linked increasing the statutory ceiling to agreeing a new federal budget and long-term debt reduction plan.