G20 debt targets spell tough times for Britain, Japan

27th June 2010, Comments 0 comments

Spooked by the faltering global recovery, leaders from the world's top 20 economies are taking a closer look at their finances and may be surprised by which countries come out worst.

At a summit in Toronto the Group of 20 nations were to promise Sunday to halve their budget deficits by 2013 and begin to put long-term deficits on a sustainable path by 2016.

So who faces the toughest task when they return home?

In the short-term, slashing the gap between government spending and revenue may be toughest of all for Britain, which has the highest deficit levels of all G20 members.

After a punishing financial crisis Britain now runs a deficit of 11.4 percent of GDP, up from a surplus of 1.3 percent 10 years ago, according to the International Monetary Fund (IMF).

London has already announced it will slap a levy on banks, ramp up taxation on goods and services, freeze public sector pay and slash benefits spending in an attempt to cut the public deficit.

But Britain's woes are closely followed by the United States, which has a deficit of 11 percent of GDP and Japan, which posts a shortfall of 9.8 percent.

Both countries have announced plans to put their books in order.

US President Barack Obama has vowed to halve the US deficit in his first term, which ends in January 2013.

The Japanese government meanwhile hopes that stronger growth will allow it to run a primary balance surplus by 2020, likely helped by tax increases.

Overall the G20's developed economies run deficits nearly three times higher than the G20's emerging economies, and reducing long-term debt will also be toughest for the most established economies.

Japan has the highest level of debt held by any G20 country, at a whopping 227 percent of gross domestic product, according to the IMF.

That is almost double the debt held by the next most indebted G20 member, Italy, which has outlays worth almost 119 percent of GDP.

But with around 95 percent of Japan's debt held by domestic investors, officials argue that the low interest Japan enjoys on its borrowing means it is not facing the same risks as other economies.

Although emerging economies are likely to be exempted from the targets, they might not pose too great a difficulty in any case.

South Korea, which will host the next G20 summit in Seoul this November, might be in the best financial shape.

It is the only G20 member running a fiscal surplus -- expected to be 1.1 percent this year -- and its debt is 33.3 percent of GDP.

In terms of long-term debt, only Russia is better off. The resource-rich country's debt is worth just 8.1 percent of GDP.

© 2010 AFP

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