WASHINGTON: Countries need to do more to improve their
finances than just stabilize their deficits and debt, the IMF
warned on Tuesday, saying one-third of leading economies face
major fiscal problems.
In a new assessment of global fiscal challenges, the
International Monetary Fund warned countries that are just closing
deficits to stabilize debt loads courted more trouble down the
road.
"Thanks to steady consolidation following the peak of the crisis
in 2009, many advanced economies are now close to achieving primary
surpluses that will allow them to stabilize their debt ratios," the
IMF said in its Fiscal Monitor report.
However, "high debt -- even if stable -- retards potential
growth, constrains the scope for future discretionary policy, and
leaves economies exposed to further market shocks," it said.
"Merely stabilizing advanced economy debt at current levels
would be detrimental to medium- and longer-term economic
prospects."
The IMF said one-third of advanced economies, which represent 40
percent of global gross domestic product (GDP), "still face major
challenges."
The Fund warned against a country trying to inflate its way out
of its debt problems, using rising prices to reduce the value of
its debt.
Nor, in most cases, can privatization of government assets
contribute enough to the effort.
As hard as it is for many countries to get their budgets into
the black, "there are no alternative quick fixes."
It warned that current low interest rates were unlikely to be
maintained in the medium term, and that markets might not always
look favourably on the most powerful economies, like
Japan and the United States, if their debt levels remain high.
The global debt problem is mainly located in developed
economies. The world ratio of gross debt to GDP is 79.3 percent and
for advanced economies it is 109.3 percent.
Japan faces the largest burden among advanced economies,
with debt at 245 percent of GDP projected this year. Behind Japan
are Greece, 180 percent; Italy, 131 percent; Ireland and Portugal
both around 122 percent; and the world's largest economy, the
United States, at 108 percent.
Despite efforts in many countries to crunch their budgets to
reduce deficits, the Fund foresees continued deterioration in debt
ratios through 2014, before they head lower.
"Many advanced economies face a lengthy, difficult, and
uncertain path to fiscal sustainability."
The Fund stressed the need for "clear and credible" medium-term
debt reduction programs rather than harsh short-term austerity
drives, to avoid setting back growth while the economies remain
weak.
"The continued absence of such plans in Japan and the United
States remains a significant concern, particularly given the
introduction of new short-term stimulus in Japan (even though
temporary) and insufficient progress on measures to restore
medium-term fiscal sustainability, including entitlement reform, in
the United States."
In the United States, a coherent medium-term plan could
substitute for the current "sequester" program to slash spending
over the next 10 years, which the IMF said was already reducing the
country's growth potential.
- AFP/fa
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among the 'leaders' only japan and U.S. still left
standing. how do they do it? by printing more
money?