IMF warns developed countries on rising debt
15 May 2010
The International Monetary Fund has warned developed countries to control their budget deficits, as the effects of the crisis are "severe and could curb economic growth".
In many countries, fiscal adjustment will require a sizable, and sometimes unprecedented, effort, IMF said in a report released yesterday.
The report said excluding financial sector support, headline and cyclically adjusted fiscal balances are expected to worsen further in advanced economies this year, contributing to a sustained rise in public debt.
By contrast, deficits remain markedly lower in emerging economies but progress in reducing deficits has been slower than expected.
The report noted that new research on government debt and growth indicates that high public debt may hamper growth, mainly through its impact on domestic investment and productivity.
"As economic conditions improve, the attention of policy makers should now turn to ensuring that doubts about fiscal solvency do not become the cause of a new loss of confidence: recent developments in Europe have clearly indicated that this risk cannot be ignored," warned IMF.