Britain is better off living with 'high debts', says IMF
The International Monetary Fund said countries such as the UK, Canada and the US could afford to live “forever” with relatively high debts.
A study released by the IMF showed that a number of nations, including Britain, Norway and Germany were in a “safe zone”, with low borrowing costs and ample fiscal space compared with the need to reduce the debt ratios that afflicts Greece, Italy, Japan and Cyprus.
The IMF added that countries which controlled their own monetary policy, such as Norway and the UK, the advantages were even clearer.
The fund suggested that the “optimal” policies for these countries involved “living with high debt piles” and that it was, in fact, preferable to implementing policies to pay down the debt as the benefits would be offset by the costs.
"When a country runs a budget surplus to pay down its debt, there is no free lunch, the money has to come from somewhere," said Jonathan Ostry, co-author of the report.
"Either through higher taxes, which undercuts the productivity of labour and capital, or lower spending which - unless that spending is completely wasteful - has a similar effect.”
Ostry added that those advocating for countries that have ample fiscal space, the cost of insurance is likely to be much larger than the benefit.
“It is much better in these circumstances to just live with the debt, allowing the debt ratio to be reduced organically through higher growth," he said.
Britain’s debt share currently accounts for 80.4% of its gross domestic product but it is expected to start falling by the end of the year.
George Osborne unveiled plans to fast-track asset sales and a £25bn spending squeeze to help Britain’s debt ratio fall faster.