IMF stresses lower deficits in crisis exit strategies

WASHINGTON – The International Monetary Fund (IMF) has urged governments to cut their budget deficits as they pull back from stimulus efforts to help sustain a long-term economic recovery.

‘Exiting from crisis-related intervention policies should be viewed in the context of achieving strong, sustained and balanced growth,’ the IMF said in a report, ‘Exiting from Crisis Intervention Policies’.The IMF advanced a scenario in which the developed countries would transform an average public deficit of 4,3 per cent of gross domestic product (GDP) this year to a public surplus of 3,7 per cent of GDP in 2020.The 186-nation institution said the goal was crucial for sustained global growth.’Financial restructuring and balance sheet repair – including bank recapitalisation – remain priorities to underpin a resumption of strong economic growth,’ the report said.’At the same time, in light of the large increases in government debts, countries should draw up plans for a major improvement in fiscal balances.’The Washington-based institution warned that if high debt levels persist in the largest economies at the same time, the interest bill to service the debt would grow, negatively impacting private investment and global economic growth.’This fiscal adjustment will be difficult to implement, but is not unprecedented,’ the fund noted.Develped countries will have little margin to cut back social spending, given their aging populations, according to the fund.To reach the scenario goal for 2020, the largest effort needed by the advanced countries would be a freeze on spending, excluding spending on health care and pension entitlements.Another important factor, worth three points of GDP – ‘could come from increasing revenues,’ including from improvement in fighting tax evasion and fraud, as well as revenues coming from taxes on greenhouse gas emissions.The unwinding of fiscal stimulus measures would contribute 1,5 points.’A large part of the adjustment would likely need to take place on the spending side, with a sizable but smaller role for the revenue side, consistent with the already high tax burden in several advanced economies,’ the report said.The IMF highlighted that it remains too soon for most countries to undertake major steps to unwind their extraordinary support measures. – Nampa-AFP