IMF issues warning on Britain’s debt
by Peter Wozniak
Britain is among those countries needing to tighten their fiscal policies in order to stem the growth of ballooning debts, according to the International Monetary Fund (IMF).
The organisation warned that the UK’s debt in relation to its GDP could rise to 90.6pc by the end of this parliament, more than doubling the levels of 2007 before the financial crisis.
“Fiscal policy will need to react more strongly to debt than past behaviour would suggest, and governments will need to engage in reforms that place debt on a sustainable footing,” the IMF said.
The Fund’s report would appear to support the government’s aggressive stance on reducing spending.
The report continued: “In the last three and a half decades, public debt has been the shock absorber in advanced economies – going up in bad times and not coming down in good times.”
Britain is in a better position than other countries in regards to debt, particularly those in Southern Europe and Japan, but remains “constrained in their degree of fiscal maneuver”.
The IMF concluded: “Timely policy measures are needed to increase the probability that public debt will remain on a sustainable path and convince markets that fiscal policy is not proceeding on a ‘business as usual’ basis.”
The report comes as the coalition spending review, to take place in October, begins to loom large on the political horizon.
David Cameron’s government will likely use reports such as these as support for their arguments on spending cuts and debt reduction, in what is likely to be a politically contentious period as the full scale of George Osborne’s economic plans come to light.
Labour, although in the midst of a leadership election, has regularly attacked the speed and scale of government spending cuts as unnecessary.
