Public debt in advanced economies at highest since WWII: IMF

Public debt in advanced economies, including the US and Japan, has climbed to its highest level since World War II and they need to focus on enduring structural changes, an IMF report has said.

The gross debt levels in Japan, the United States, Greece, Italy, Portugal and Ireland are above 100 per cent, the World Economic Outlook (WEO) of the International Monetary Fund (IMF) said today.

"Given the weak growth environment, support for growth is the first priority to cope with the contractionary effects of fiscal consolidation.

"Policies must emphasise the resolution of underlying structural problems within the economy, and monetary policy must be as supportive as possible," said the report released at the IMF headquarters here.

These concerns have been reflected in ratings downgrades and higher sovereign borrowing costs, especially for some European countries, it said, adding that correcting fiscal imbalances and reducing public debt have therefore become high priorities.

Low growth, persistent budget deficits and high future and contingent liabilities, stemming from population-ageing- related spending pressure and weak financial sectors, have markedly heightened concerns about the sustainability of public finances, it said.

Observing that public debt levels above 100 per cent of GDP are not uncommon, the report said that over the past century, 14 out of 22 countries in its database experienced at least one episode where debt rose above 100 per cent.

Several countries experienced multiple episodes, it said. 

The WEO report said, "Because debt reduction takes time, fiscal consolidation should focus on enduring structural changes.

"In this respect, fiscal institutions, such as those in Belgium, that enhance the transparency and accountability of the budget process, can help."

However, the case of Italy in the 1990s suggests that modest debt reduction is still possible without strong growth, it added.