There are many men in dark glasses in Washington DC during the summer. Amongst the most feared have been the International Monetary Fund economists who fly around the world reviewing the policies of individual countries – so-called Article IV Consultations.
Such a team has been in the UK over the past weeks and a few moments ago I heard them issue the single most important external report on the UK economy from their headquarters in Washington DC. In it the IMF staff project that gross government debt could reach 100 per cent of GDP by 2014/2015 or 87 per cent on the net debt measure.
Britain seems to be being advised to engage in the sort of ‘Structural Adjustment’ of borrowing policies that the IMF used to force upon bankrupt developing countries. The IMF want the UK to come up with ’specific measures’ – ie the detail of spending cuts.
The detail of the report makes specific reference to the need for a Comprehensive Spending Review, though concedes the actual cuts should probably be best timed for after a recovery starts. It points out that the debt markets, that will determine if and when Britain goes bankrupt, continue to give the UK the ‘benefit of the doubt’.
‘But it will not last forever. The UK should not test the limits of the markets, and [instead] outline an ambitious post-recovery consolidation plan,’ says Ajai Chopra the IMF’s mission chief to the UK.
In the government’s favour, the IMF acknowledges that the UK governemt was ‘ahead of the curve’ in sorting out its financial system, and those actions alongside the Bank of England’s seems to have ’stabilised the patient’. But the IMF seems to be far more pessimistic about the potential Exchequer cost of those interventions, and so have government debt levels heading much higher than the Treasury.
There’s an irony here. Despite the protestations of the Prime Minister, the Chancellor has already set out a path for public spending that is as stingy as that forced upon the UK by the IMF in 1976. Britain is already attempting its own form of structural adjustment. The IMF is not expecting another visit in 2010. The economy is stable. The problem is that the UK is in a poor fiscal position to get past any further unexpected financial shock.
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Is there anyone left who does not understand that we have to expect a severe reduction in public spending for many years (except maybe our PM)?
Our insane level of borrowing is the biggest threat to this country’s economic viability and will have to be addressed by any government. I feel sorry for whoever wins the next election. There is absolutely no way out except the dismantling of the public spending burden and the shift of as many unproductive staff as possible into the productive private sector, where the nation receives a net financial gain rather than a net cost. This is not political ideology but economic survival.
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At last some news which has straight-talking in it about the situation of Britain and the economy. The British treasury has large old loans to repay in the next 6 months and this will compromise the outlook for the nation during this watershed year of 2009 as we transition toward our near future, the nation does not have a good standing in the world economies and the funding for heavy borrowing is not readily available. The outlook leading to the games in 2012 is bleak assuming we can continue until then.
Agree with comments by Kes.
The state of Britain’s finances and most other areas of government that will be left by an outgoing Brown Govt, will give a new incoming government a golden opportunity to make serious structural changes to our system of govt and simply drop depts which serve no usefull purpose. If Cameron is that man, I hope he has the vision and strength to do that.
Debt =100% of GDP.
That’s bankrupt in plain english…!
Hi,
Is there a positive in this, ie if something isnt broke, there is no real incentive tofix it? perhaps our sick grasping society could change for the better through this, once the false god of greed and selfishness destroys finally itself
Perhaps these so called economical hit men from Washington DC where merely following order’s and checking up on the USA’s newest acquisition the UK ! or perhaps they where part of the plot to destroy the west banking and economic systems ready for some mad egotistical maniac from the financial world whom wants to hold the western world to ransom or was it some eastern country who wanted to destroy the western economize by economic terrorism! has they say all things are possible but the truth of the matter lies with the banks and the way they played and gambled with moneys that didn’t belong to them and still no one has gone to prison
I work for an international body and am currently based in London (though have worked around the world and rescued a country back in the 90s). Oh, yeah – we are on standby for the UK. Just a matter of time…
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