US President Joe Biden and Speaker of the House of Representatives Kevin McCarthy have reached an agreement in principle on the thorny issue of the debt ceiling, world agencies reported, citing Kevin McCarthy. This is a key stage in avoiding a US default.

The compromise is the result of long and complex negotiations. Negotiation teams are now finalizing the details that will be written into a bill that will be voted on in Congress. If no deal had been reached, the US would have been in default on June 5, unable to pay wages, pensions or service other financial obligations.

Like all major economies, the US lives on credit. But unlike other developed countries, the US regularly faces the problem of the debt ceiling - a maximum amount to which the US can borrow and which must be formally increased by Congress.

In negotiations since January, Republicans have tied any raising of the debt ceiling, now set at $31.4 trillion, to budget savings and cuts.

House Republican leader McCarthy portrays himself as an unrelenting advocate of fiscal discipline. Lately, he's been talking to the Democratic president about the debt ceiling.

The agreement in principle is now giving US markets a breath of fresh air. Ratings agency Fitch put the US's AAA rating on watch on Thursday and said a failure to reach a deal on the debt ceiling would be a negative sign on the governance issue.

According to familiar sources, the debt ceiling deal keeps non-defense spending relatively flat for the current fiscal year and for 2024. There is no ceiling on budget spending for 2025.

The Speaker of the House of Representatives said the agreement in principle allows the US to avoid a catastrophic default. He provided few details on the deal and said he would have another conversation with Biden later today and that he hoped to arrange a vote on the deal in the House of Representatives on Wednesday.

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