Fiscal prudence needed to protect a fragile recovery and reassure markets, says body
The global economic crisis has eroded the government coffers of advanced economies and countries will need to return debt levels to a sustainable path to manage fiscal risks, foster long-term growth, and create jobs in the coming years.
This was the message from the International Monetary Fund's (IMF) latest research into public debt levels.
The IMF said governments need to develop credible fiscal plans that focus on longer-term solutions, rather than on quick fixes, to protect the fragile recovery and reassure financial markets.
“Public debt levels among advanced economies have reached levels not seen before in the absence of a major war,” said Carlo Cottarelli, Director of the IMF’s Fiscal Affairs Department and one of the author of the report.
“The most indebted economies are approaching debt limits beyond which their fiscal positions may become unsustainable,” added Jonathan Ostry, Deputy Director of the IMF’s Research Department, and another report author.
General government debt in the G-20 advanced economies surged from 78 % of GDP in 2007 to 97 % of GDP in 2009 and is projected to rise to
115 % of GDP in 2015.
The fiscal stimulus packages put in place to combat the worst effects of the crisis account for only one-tenth of the increase in public debt projected during 2008-15.
While debt is high, the IMF said default on sovereign debt would make little sense for advanced economies because the central problem in these countries is high primary deficits, not high debt service.
