The global economic crisis has left "deep scars" fiscal balances

The global economic crisis has left "deep scars" fiscal balances of the advanced countries of the world, which should begin to control spending next year as the recovery continues, the No. 2 official of the International Monetary Fund said Sunday .
In a speech at the Development Forum of China in Beijing, the official of the International Monetary Fund, John Lipsky, who is the Director-General, offered a gloomy prognosis for the richest countries in the world, who are at a level Debt is not seen since the aftermath of the Second World War.
For the United States, "an increase in public savings will be needed to ensure fiscal sustainability in the long term," said Lipsky.
Lipsky said the average debt to GDP in advanced economies is expected this year to reach the level that prevailed in 1950. Even if the fiscal stimulus is removed in the coming years, the proportion should rise to 110 per cent by the end of 2014, 75 per cent by the end of 2007.
In fact, the proportion should be near or above 100 percent for five of the Group of 7 countries - except for Canada and Germany - in 2014.
"To meet this financial challenge is a key priority in the short term, concerns about fiscal sustainability could undermine confidence in economic recovery," said Lipsky. Maintaining levels of public debt after the crisis could reduce the potential growth in advanced economies and the extent of half a percentage point per year, compared to forecasts before the crisis, he said.
To reduce debt ratios than the average pre-crisis level of 60 per cent in 2030, he said, would require a swing of 8 percentage points - from a structural deficit of around 4 per cent of GDP in 2010 to a surplus of about 4 percent of GDP in 2020.
The I.M.F. accounts estimates of discretionary spending as a stimulus for only 1.5 percent of GDP, Lipsky said that advanced economies should take other measures, such as changes in pension programs and health care, other expenditure cuts and tax revenues.
Although it is logical that the largest economies in the world to continue to spend the stimulus until the end of this year, fiscal consolidation should begin in 2011 if the recovery is on schedule, "said M . Lipsky.
Lipsky also said a "new global balance of savings habits" would be needed to sustain the recovery.
The United States and the European Union have become increasingly concerned about the buildup of China to an estimated 2.5 billion dollars in foreign reserves, the result of a large current account surplus with the rest of the world and measures to maintain the value of Chinese currency.
Many economists believe that China will eventually have to develop their domestic markets and wean its economy from dependence on exports.
Lipsky said that China was taking steps to reorient public spending away from physical infrastructure and improvements in education, health and social security programs "that will increase productivity and to directly support consumption reducing the perceived need for precautionary savings.
A sustained increase of 1 percent of G.D.P. health, education and pensions could lead to permanent consumption increase of more than 1 percent of GDP, Mr. Lipsky said, adding that China should consider increasing household income by shifting the burden tax and earnings for the property and capital gains.
Fiscal policy should be a topic on the agenda when leaders of the Group of 20 countries will gather at a summit held in Toronto in June
Lipsky warned governments to try to inflate their way out of debt.
"A moderate increase in inflation would have little impact on the burden of real debt, while rising inflation and high economic costs would create a substantial risk to sustained expansion," said it.