IMF warns rich countries to spell out deficit plans

Deeply indebted advanced economies urgently need to establish deficit-cutting plans before markets turn on them, the IMF warned on Thursday, singling out Japan and the United States among the laggards. In an updated analysis on global debt and deficits, the IMF said the pace of deficit reduction in advanced economies with large debt was set to slow this year, mainly because of delayed fiscal adjustments in the United States and Japan.
Its warnings came as rating agency Standard & Poor's cut Japan's long-term sovereign debt rating for the first time since 2002, saying Tokyo lacked a plan to deal with its debt load. The deepest global recession since the Great Depression forced rich countries to dig deep into their pockets to support their economies, pushing debt loads to record levels in some countries.
Some European nations have been forced to pay high interest rates on their debt for not keeping a better control on their finances, forcing governments to launch budget austerity plans. The IMF said earlier this week that Europe's debt crisis posed one of the gravest risks facing the global recovery. In its latest report, the fund said large European countries will all tighten their budgets this year broadly in line with earlier plans, with Spain's cuts the largest. But it said Europe needed a more comprehensive approach to crisis management to avoid spillovers and to "break the fiscal-financial spiral".
In a warning to emerging markets, the IMF said fiscal balances in Brazil, China and India were weaker than the IMF projected in November, noting the deterioration in Brazil's fiscal accounts was "particularly pronounced." The IMF warned the surge in private investment flows and easy credit conditions could discourage emerging markets from building up sufficient fiscal buffers.
The IMF said new data showed that advanced economies were making progress last year in cutting their debt loads. Deficits of rich countries declined to 8 percent of gross domestic product in 2010, a slight improvement over earlier IMF projections, the fund said.
It said good revenue performance and lower spending in Germany and the United States helped lower deficits last year. Euro-area countries that had targeted large fiscal consolidations generally succeeded in posting marked deficit reductions, it added.