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IMF paints grim picture of need for tightening

DEVELOPED countries with big budget deficits must start now to prepare public opinion for the belt-tightening that will be needed starting next year, the number two official at the IMF said yesterday.

John Lipsky, the International Monetary Fund’s first deputy managing director, said the scale of the adjustment required was so vast that it would have to come through less-generous health and pension benefits, spending cuts and increased tax revenues. “Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery,” Lipsky told the China Development Forum. “Already in several countries with particularly high debt and deficits, sovereign risk premia have risen sharply, imposing strains for the countries affected and raising risks of possible broader spillovers.”

Policymakers should already be making it clear to their citizens why a return to prudent policies is a necessary condition for sustained economic health, Lipsky said.