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UK debt needs long-term fiscal reform

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The UK’s debt compared with gross domestic product could almost double from its 2007 levels by 2015, the International Monetary Fund (IMF) has said.

Although the IMF acknowledged that the UK had started to tackle the issue of its debt to GDP ratio, longer term reforms would be necessary.

In its latest report on the global economy, the IMF forecast that the UK’s debt to GDP ration could more than double from the 44.1 per cent recorded in 2007 over the next five years.

The IMF projected the debt ratio at 83.9 per cent by 2015.

The report said: “Fiscal policy will need to react more strongly to debt than past behaviour would suggest, and governments will need to engage in reforms that place debt on a sustainable footing.

“In the last three and a half decades, public debt has been the shock absorber in advanced economies – going up in bad times and not coming down in good times.”

The government’s decision to set up the Office for Budget Responsibility (OBR) won applause from the IMF, but the organisation went on to say that the UK was still “constrained in its degree of fiscal manoeuvre”.

The IMF’s is a more pessimistic projection than that of the OBR itself, which expects debt to climb to 69.4 per cent by 2014/15, up from 53.5 per in 2009.