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Risks: The outlook remains fragile

Figure 16. Further required deficit reductions for fiscal sustainability
Source: World Bank

Financial arket uncertainty and fiscal consolidation associated with the high deficits and debt levels of high-income countries are likely to be recurring sources of volatility for several years to come. Given current government deficit and debt levels (figure 16), it will take years of concerted political and economic effort before debt to GDP levels of the United States, Japan and many Euro Area countries are brought down and on a path to stabilize at 60 percent of GDP (IMF, 2012).

Although debt levels in developing countries are lower, several countries (notably Jordan, India and Pakistan) would have to reduce their structural primary deficits by 5 or more percent of GDP if they are to reduce debt to 40 percent of GDP by 2020 (or prevent debt-to-GDP ratios from rising further). Others like Brazil and Philippines require little additional adjustment. The metric for high-income country debt stability is more generous (60 percent of GDP). Nevertheless, the amount of structural adjustment required is much larger in many cases — with the United States and Japan requiring steeper cuts in spending than any Euro Area economy.

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