Fiscal consolidation major challenge for advanced economies: IMF

08:39, April 22, 2010      

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The International Monetary Fund (IMF) said on Wednesday that the main challenge now for advanced economies is fiscal consolidation, a policy aimed at reducing government deficits and debt accumulation.

"In advanced countries, the main challenge is fiscal consolidation," Olivier Blanchard, the IMF Chief Economist, said at a press conference for the World Economic Outlook report compiled by the international financial institution.

"A year ago, the risk was that private demand would collapse, leading to another Great Depression scenario. The priority was thus to implement fiscal stimulus programs, and avoid this catastrophic scenario," Blanchard said.

"One year later, however, the risk has shifted location. The loss in fiscal revenues associated with the loss in output is threatening to lead, if not contained, to a debt explosion," Blanchard noted.

"In most countries, fiscal consolidation must increasingly be the priority," he added.

"There is clearly now a much bigger emphasis on fiscal consolidation," said Jorg Decressin, head of the World Economic Division in the Research Department at the IMF, while answering questions at the press conference.

"While we were in the crisis, we have to avert a meltdown, and fiscal stimulus plays an important role in this. But now with the meltdown being averted, confidence returning and growth picking up, it is clear that fiscal consolidation deserves much more emphasis, " Decressin said.

The IMF warned on Tuesday in its latest Global Financial Stability Report that public debt crisis in advanced economies could put risks on global financial stability and prolong weakness in the credit market.



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