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High debt ratios amid weak growth in developed economies and emerging vulnerability in the developing world shadowed the global fiscal landscape, the International Monetary Fund (IMF) said on Wednesday in its newly-released report.
"Strenghening fiscal balances and buttressing confidence thus remain at the top of the policy agenda,"said the Washington-based IMF in its twice-yearly Fiscal Monitor report.
But different economies face different degree of urgency."Deficit-cutting efforts and the first signs of recovery reduced the fiscal stress felt in many advanced economies,"said Martine Guerguil, one of the report authors, adding"slowing growth and rising borrowing costs, combined with unabated demands for improved public services, puts pressure on government budgets in emerging market economies."
According to the report, developed economies except Japan are narrowing budget deficits at the fastest pace since 2011 that are expected to stand below 5 percent of Gross Domestic Product (GDP), and they are on track to have debt stabilise in the next year, although the average public debt ratio will remain at historic peak, about 110 percent of GDP and 35 percentage points above its 2007 level.
The report envisaged that the developed economies that need to make the most progress on deficit reduction are almost two-thirds of the way to meet the mid-term fiscal objectives of 70 percent of GDP by 2030.
"This does not mean that the last mile will be the easiest... as adjustment fatigue creeps in. "said Guerguil, adding"This is particularly relevant in Europe, where economic growth remains weak, and only adds further pressure to an already constrained budget."
The shutdown of the U.S. federal government and the failure so far to raise the debt ceiling also add to uncertainty, the report said.
And Japan need to address the hardest task in debt reduction among developed economies, given its debt ratio of 243.5 percent of GDP this year,the IMF said.
The IMF also noted growing fiscal vulnerabilities in the developing world, as grow potential in most emerging ecnomoies were revised downward on Tuesday in the IMF' s World Economic Outlook report.
In addition, fiscal stimulus in many developing economies used to contain the impact of global crisis widened deficits and drove up debt ratios, said the IMF.
As for the way to bridge fiscal gaps, the IMF said the potential for raising tax revenue can be"substantial"in emerging economies by improving compliance and tax reform.
While the scope to raise more revenue is limited in many advanced economies as their tax ratios are already high, the IMF believes higher taxes on property and on the rich may be good options, otherwise the priority will have to fall on spending cuts.
