WASHINGTON (AP) — The International Monetary Fund is urging U.S. lawmakers to raise the nation's borrowing limit. It warns that inaction could lead to a spike in interest rates that would harm the U.S. economy and world financial markets.

The debt limit is the amount the government can borrow to help finance its operations. The United States reached its $14.3 trillion borrowing limit in May. It is at risk of defaulting on its debt if it doesn't raise that limit by Aug. 2. President Barack Obama and Republican lawmakers have been at odds on a plan to raise it.

The IMF also warns in its annual report on the U.S. economy that rising budget deficits pose a risk. But it advocates a long-term strategy for reducing them, not immediate cuts or tax increases.