UPDATE 1-Fiscal adjustment in rich nations ‘appropriate’-IMF

* Pace of fiscal adjustment about right-IMF

* Risks elevated amid concerns recovery losing steam

* Countries must set longer term targets to cut deficits
(Adds details, quotes from news conference)

By Lesley Wroughton

WASHINGTON, Nov 4 (BestGrowthStock) – Debt-burdened rich nations
are beginning to cut back deficits at an appropriate pace but
there is a high risk investors could lose confidence in their
plans, the International Monetary Fund said on Thursday.

In the IMF’s twice-yearly “Fiscal Monitor” report, the fund
said fiscal adjustments, especially in advanced economies, are
set to gather pace next year but at different speeds.

The pace is appropriate “given the need to strike a balance
between improving fiscal fundamentals and avoiding an abrupt
withdrawal of support to economic recovery,” the IMF said.

As fiscal tightening broadens in 2011 in both developed and
emerging economies, governments need to be more clear about
plans to cut spending in order to retain investors’ trust, the
IMF said.

In contrast to rising debt ratios in rich countries,
deficits in emerging market and poorer nations are falling
mainly due to improved economic conditions, the IMF said.

Public debt ratios in advanced economies will increase
further this year. They are projected to be about 29 percentage
points of gross domestic product higher by the end of 2011 than
before the crisis, the fund added.

“Fiscal deficits still exceed what would be necessary to
stabilize the public debt ratio,” the IMF said. It noted fiscal
tightening plans in Canada, Iceland, Israel, South Korea,
Sweden and Switzerland were enough to lower debts by 2011.

The sharpest increases in debt of between 15 and 42
percentage points are projected in Ireland, Greece, Spain,
Japan and the United States, the IMF said.

It said deficits have declined in 60 percent of countries
covered by the report. In 2011, 90 percent of countries are
expected to record smaller deficits.

The last Fiscal Monitor report in May warned advanced
economies face a herculean task to restore public debt to
pre-crisis levels and failure to do so would drive up borrowing
costs and curb economic growth.

The IMF kept that message, warning the average gross
financing needs of advanced economies, which is already high,
is projected to increase in 2011, while in emerging economies,
financing needs will fall further.

It said country’s fiscal plans typically go through 2013
but few countries have spelt out a clear timeframe to cut their
debt ratios beyond that.

The U.S. budget deficit narrowed to $1.29 trillion or 8.9
percent of gross domestic product (GDP) in fiscal 2010 but was
still the second-highest since World War Two. The White House
sees total public debt rising to 68.6 percent of GDP in fiscal
2011, a level surpassing Britain’s projected ratio of 61.9
percent but well below that of France at 86.5 percent.

Higher maturing debt in 2011 is likely to increase the
average financing need to about 27 percent of GDP, largely
because of high debts in Japan and Greece, and somewhat lesser
extent in Portugal and the United States, the IMF said.

Japan’s financing needs are by far the largest, at over 50
percent of GDP, followed by the United States, Greece, Belgium,
Italy, France and Portugal at more than 20 percent of GDP.

Carlo Cottarelli, head of the IMF’s Fiscal Affairs
Department, said Japan was in a position to easily finance its
deficit but its large debt-to-GDP ratio meant that its fiscal
adjustment would have to be aggressive.

Japan was the only G20 member not to commit to halving its
deficit by 2013 during a Group of 20 summit in Canada earlier
this year. The so-called Toronto Declaration acknowledged that
given its “specific circumstances, that target did not apply to
Japan.
(Reporting by Lesley Wroughton; Editing by Andrew Hay)

UPDATE 1-Fiscal adjustment in rich nations ‘appropriate’-IMF