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The International Monetary Fund in its Fiscal Monitor report published
today raised the Irish budget deficit for 2011. On Monday in the World Economic
Outlook report, the Fund forecast that Irish GDP (gross domestic product) would
only grow by 0.5% this year rather than 1% as forecasted late last year. In its
bi-annual report on fiscal sustainability, the IMF says Ireland's fiscal deficit
this year will be 10.8% in 2011, an increase of 0.8% over the Government's medium term
In addition, the IMF says the public debt to GDP ratio will not reach the 3%
target level in either 2015 as in the new Programme for Government has targeted or
in 2016, when
it is forecast to be 3.8%.
The report says the outlook for government debts and deficits in
2011 is a mixed bag, with most advanced economies reining in fiscal
deficits, but not fast enough to keep their debt from rising.
Fiscal balances are improving in most emerging economies, and
some could do more as they experience a windfall from high commodity
prices and strong capital flows.
Due to high debt and deficits, government financing needs
continue to be large in advanced economies, and risks remain,
according to the IMF’s
latest analysis (pdf).
The IMF projects the pace at which advanced economies reduce
their deficits and accumulated debt will be slower on average in
2011 than projected earlier, as the United States and Japan delay
The latest edition of the IMF’s
Fiscal Monitor (pdf) said many countries’ deficits will fall in
2011, reflecting fiscal tightening, particularly in Europe, and
improved economic conditions. The average deficit for advanced
economies is expected to fall by ¾% of GDP to 7%,
which represents a slower pace than projected in the November 2010
In 2011, emerging economies’ deficits are expected to fall 1¼% of GDP, but with big differences across regions. While
emerging economies in Latin America and Europe are reducing deficits
and debt levels, Asia with some exceptions, is not cutting back.
Japan’s devastating earthquake in March will require additional
government spending for immediate humanitarian needs as well as
reconstruction. Although it is too soon to estimate the fiscal
costs, the country has ample funds to finance its rebuilding, the
The United States will require significant deficit cuts in 2012
and 2013 to meet their commitments over the next few years. A
downpayment in the form of deficit reduction this year would ease
the burden in future years.
Fiscal Monitor is published twice a year to track public
spending and government debt and deficits around the world.
Share the burden
The IMF said all countries that need to reduce their deficits
must also take action to ensure that the burden of the fiscal
adjustment, and the benefits of the economic recovery, are
While most countries have plans in place to reduce their deficits
and debt levels in the coming years, advanced and emerging market
economies will need to
Control health care and pension spending,
which is projected to rise significantly in advanced economies in
the coming years
Strengthen the institutions charged with government
budgets, revenues, and spending, and, where appropriate,
introduce or strengthen fiscal rules and independent fiscal agencies
to guide policy
Ensure fiscal transparency and avoid
accounting strategies that make fiscal accounts look better in the
short run but lead to higher deficits later
Improve targeting of social safety net spending on the
most vulnerable groups in society.
Deficits dropping, debt still rising
While nearly all advanced economies will reduce their deficits in
2011, two-thirds will see their debt levels increase with the
average topping 100% of GDP for the first time since World
Countries from the United States to Europe will tighten their
belts in 2012. Without new policies, deficit reduction is expected
to slow in 2013 and 2014, leaving deficits substantially above
levels last seen before the global crisis.
Debt Ratios Still Rising:
Earlier in the week, the IMF said the
global economic recovery is gaining strength, with world growth
projected at about 4½% in both 2011 and 2012, but
unemployment remains high, and risks of overheating are building in
emerging market economies.
A fiscal sustainability risk map developed for this issue of the
Monitor shows that risks remain high overall for advanced economies,
and the divergence across countries has increased since
Too much of a good thing
Emerging economies, including Brazil, India, and South Africa,
have been buoyed by higher revenues thanks in part to capital flows,
and in some cases higher commodity prices.
The IMF said booming emerging market economies should resist
spending pressures and save any excess revenue from temporary
factors, such as above trend growth, commodity price booms, and
asset price booms. This will help them build up their fiscal
buffers, avoid procyclical policies, and reduce pressures from
Food and fuel price pressures
The report says low-income countries survived the crisis relatively well, thanks
in part to the buffers they had built up during good times. They
were able to spend money in the downturn to help support their
economies, and in 2010 began cutting back on spending as their
The pace at which low-income countries reduce debts and deficits
will slow in 2011 amid risks from rising food and fuel prices.
Both emerging and low-income countries have to manage a delicate
balancing act of addressing the social costs of high food and fuel
prices, while keeping debt levels and deficits on a sustainable
Near Disaster at JFK: Disaster was averted at New York's JFK when an Air France A380 clipped the tail of a smaller Comair commuter jet. Video was shot by someone inside the airport. No one was hurt.
In New York Tuesday, the Dow fell
132 points or 0.98% to 12,260.
The S&P 500 fell 0.90% and the
Nasdaq slipped 0.98%.