Ballooning public debt in advanced economies will bring growth shocks to these countries, and this challenge has brought the sustainability of fiscal policy and public debt to the forefront of policy discussions, the International Monetary Fund (IMF) said on Monday.
The recent worsening of the debt outlook in advanced economies reflects a number of factors, including a sharp deterioration of fiscal balances during the crisis and, in some cases, government intervention in the banking sector. This deterioration is also related to the long-term spending pressures from population aging, the IMF said in a report released on Monday prior to its upcoming annual meetings, Xinhua reported.
A high debt level exacerbates an economy's vulnerability to interest rate and growth shocks, and it is generally associated with higher borrowing requirements, cautioned the IMF.
Fiscal risks vary across countries, and modernizing the framework for fiscal policy and public debt sustainability analysis has become necessary, particularly in light of the recent crisis and rising sustainability concerns in some advanced economies, noted the report.
The Washington-based IMF and its sister agency World Bank were scheduled to kick off their annual meetings in late September.