The International Monetary Fund (IMF) has warned that, despite progress in countries like Britain, governments in advanced economies need to do more to stave off debt. The report expresses concern that debt-to-GDP levels will be nearly double their 2007 levels by 2015 in both the U.S. and U.K. “Fiscal policy will need to react more strongly to debt than past behaviour…” said the IMF. “In the last three and a half decades, public debt has been the shock absorber in advanced economies—going up in good times and not coming down in good times.” The report called for growth-friendly structural reforms, stronger fiscal institutions and spending and revenue reforms. The report found that Greece, Italy, Japan and Portugal are in the worst position, with the U.K., U.S., Ireland, and Iceland also requiring restraint. By contrast, Canada’s debt-to-GDP ratio is expected to fall by 2015. Although the fiscal situation is challenging, the IMF says that they have observed “some market overreaction,” to the risk of debt defaults in advanced economies.
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