WASHINGTON, D.C.: The International Monetary Fund (IMF) said on Wednesday that advanced economies still hold too much debt, but even as they trim it they need to spend more to generate jobs.
After government debt loads soared in the financial crisis that began in 2008, they have now stabilized, the IMF’s new assessment of global fiscal strength says.
But debt, as a percentage of gross domestic product, is still high and needs to be reduced further in the richest economies, it stressed.
The Fund sees the average debt burden for advanced countries rising slightly to 106.5 percent of GDP this year before slipping to 106.0 percent by the end of next year.
For advanced economies as a group, “it is still expected to exceed 100 percent of GDP at the end of the decade. It is important to continue to reduce debt to safer levels and rebuild fiscal buffers,” the Fund said.
Yet, with joblessness still high in many of the leading economies, the IMF cautioned governments about excessive spending cuts and debt reduction that would impact growth and job-creation activities.
“Hesitant recovery and persistent risks of ‘lowflation’ and reform fatigue call for fiscal policy that carefully balances support for growth and employment creation with fiscal sustainability,” the Fund said.
While it stressed each country’s situation is different, in areas where the jobs market is stifled by regulations—an issue that arose in the IMF-supported rescue of Greece—the Fund said that a “transitory” loosening of government spending policy can buy time to implement labor market reforms.
In addition, governments can better target their spending to address labor market challenges, such as high youth unemployment and low participation by women.
“Measures targeted to specific segments of the labor force have been found to be more cost-effective than blanket ones,” it said.