Governments Confront Policy Dilemma on Debt, Growth
The latest edition of the IMF’s Fiscal Monitor said all governments face difficult policy choices. Many need to further develop their plans to reduce debts and deficits over the medium term, and then communicate them to investors and financial markets.
“The appropriate pace of adjustment in the short run will depend, for each country, on the intensity of the market pressure it confronts, the magnitude of the risk to growth it faces, and the credibility of its medium-term program,” said Carlo Cottarelli, head of the IMF’s Fiscal Affairs department, which produced the report.
In a speech last week in Washington, D.C., IMF chief Christine Lagarde said consolidating too quickly can hurt the recovery and worsen job prospects. In the short run, policymakers must focus on measures with the biggest bang-for-the-buck that create jobs and kick-start growth.
The IMF Fiscal Monitor is published twice a year to track public spending and government debt and deficits around the world. Quarterly updates are issued in January and July.
The IMF also released its World Economic Outlook and the global recovery has weakened. Growth in the advanced economies is projected at 1.6 percent in 2011. For emerging and developing economies growth is projected at 6.4 percent in 2011.
Progress continues in 2011
Advanced and emerging economies are making steady progress this year to reduce fiscal deficits, and the rate of improvement is broadly in line with projections made in the April 2011 Fiscal Monitor.
The average deficit for advanced economies is projected to be 6.7 percent of GDP in 2011, which is 0.4 percent better than projected in the April 2011 report.
The United States’ deficit is expected to fall to 9.6 percent of GDP in 2011, the IMF said. The overall deficit is about 1 percent of GDP smaller than projected in the April Fiscal Monitor. This is due in large part to a combination of increased government revenues and a slower pace of expenditure.
The IMF forecasts a significant decline in the United States’ deficit in 2012, but this does not fully incorporate the impact of President Obama’s proposed jobs plan. The plan would provide welcome support to job creation and growth in the short run, according to the IMF, but needs to be embedded in a clear...
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