IMF’s Lipsky…dire warning

IMF Deputy Managing Director John Lipsky yesterday warned countries with large budget deficits to prepare for belt-tightening immediately.He told media representatives the size of necessary adjustment was “so enormous that it will have to come through slashed health and pension benefits, many other spending cuts, and increased tax revenues. Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery”.

Speaking at the China Development Forum, Lipsky insisted:

“Already in several countries with particularly high debt and deficits, sovereign risk premia have risen sharply, imposing strains for the countries affected and raising risks of possible broader spillovers”.

Fiscal strategists should be making it clear right now to their citizens why an immediate return to prudent policies is a necessary condition for sustained economic health, the IF chief added. He suggested that maintaining public debt at its post-crisis levels could reduce potential growth in advanced economies by as much as half a percentage point annually.

This is the lead George Osborne should be taking. People of sound mind will be looking to him to do so in answer to what will be not so much a neutral as a neutered Budget from New Labour this Wednesday.