IMF warns of acute debt challenges for West

The International Monetary Fund has warned that advanced economies such as the UK and US are facing an 'acute' challenge in reducing debt loads following the financial crisis which could in turn hamper economic growth.

By James Quinn, US Business Editor
Published: 8:40PM GMT 22 Mar 2010

John Lipsky believes that high levels of governmetn debt could slow growth Photo: Bloomberg

The International Monetary Fund has warned that advanced economies such as the UK and US are facing an 'acute' challenge in reducing debt loads following the financial crisis, a problem which could in turn hamper economic growth.

John Lipsky, the IMF's first deputy managing director, said that high levels of government debt and fiscal deficits have already led to increased risks for a number of countries.

Mr Lipsky cautioned that such problems could slow economic growth over the medium-term and trigger higher interest rates.

"Maintaining public debt at its post-crisis levels could reduce potential growth in advanced economies by as much as half a percentage point annually compared with pre-crisis performance," he said in a speech in Beijing.

He went on to say that for "most advanced economies' " fiscal consolidation should begin in earnest in 2011, and gave warning that simply unravelling stimulus programmes would not be enough.

Mr Lipsky cited evidence that all G7 countries except Germany and Canada will have debt-to-GDP ratios close to or in excess of 100pc by 2014.

"This surge in government debt is occurring at a time when pressure from rising health and pension spending is building up," he continued.

In a separate speech in Hanoi, Mr Lipsky said the global economy will rebound by 4pc in 2010 and 4.25pc in 2011.

However, what the IMF terms the "emerging Asia" region – including China and India - will grow at more than twice the pace, with an economic growth rate of 8.25pc estimated in the current year.


http://www.telegraph.co.uk/finance/economics/7500211/IMF-warns-of-acute-debt-challenges-for-West.html