By Angela Monaghan
The International Monetary Fund has warned that long-term fiscal reforms will be required among advanced economies as it projected the UK’s gross debt to gross domestic product would rise to 90.6pc in 2015.
The Washington-based fund said that while some countries – including the UK – had made a start on the reform process, more action would be needed to address the “formidable challenge” of reducing debt ratios over the coming years.
It said the UK gross debt to GDP ratio would more than double by 2015 from 44.1pc in 2007. In the US it forecast a rise to 109.7pc from 62.1pc over the same period.
“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.
“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.”
It praised the Coalition’s creation of the independent Office for Budget Responsibility, introduced with the aim of giving the official growth and public finances forecasts greater credibility.
The IMF said that at the current time Greece, Italy, Japan and Portugal appeared to be in the worst fiscal position, while the UK, the US, Ireland and Iceland were also “constrained in their degree of fiscal manoeuvre”.
The fund projects that Britain’s net debt to GDP ratio will rise to 83.9pc in 2015 from 61.5pc in 2009. That is a more pessimistic view than that taken by the OBR, which in the June Budget forecast an increase to 69.4pc in 2014-15 from 53.5pc.