IMF warns indebted countries against ‘quick fixes’

Indebted countries have been warned against 'quick fixes' to bring down their swollen debts, with the UK named among a group that has little room to manoeuvre.

The International Monetary Fund (IMF) said governments need to develop plans to cut their debts that focus on longer-term solutions, rather than on quick fixes.

The UK’s coalition government moved rapidly to take action to bring down its debts, immediately announcing plans to make spending cuts after winning the election. But many have warned that David Cameron's government is moving too far, too fast and risks throwing the economy back into recession with its cost-cutting measures.

The IMF highlighted the UK, alongside Ireland, Iceland, Spain and the US, as among a group that have limited ‘fiscal space’ – that is the difference between the debt limit and their current debt.

Only Greece, Italy, Japan, and Portugal are in a worse fix, the IMF said.

However, the IMF appeared to praise chancellor George Osborne’s decision to set up an independent economic forecaster, the Office for Budget Responsibility.

‘The most indebted economies are approaching debt limits beyond which their fiscal positions may become unsustainable,’ said Jonathan D. Ostry, deputy director of the IMF’s research department.

In some cases, a ‘marked departure’ from the normal adjustment to rising public debt is needed, the IMF said.

It warned that governments should not be complacent when their debt is close to its maximum sustainable level because there may be little warning from markets ahead of a very sharp spike in borrowing costs.

You can read more about what the IMF does here.