IMF warns rich countries to spell out deficit plans

Heavily-indebted advanced economies urgently need to establish deficit-cutting plans before markets turn on them, the IMF warned on Thursday, singling out Japan and the United States among the laggards.

In an updated analysis on global debt and deficits, the IMF said the pace of deficit reduction in heavily indebted advanced economies was set to slow this year, mainly because of delayed fiscal adjustments in the United States and Japan.

Its warnings came as rating agency Standard & Poor's cut Japan's long-term sovereign debt rating for the first time since 2002, saying Tokyo lacked a plan to deal with its debt load.

"In advanced economies where fiscal sustainability has not been a market concern, credible plans going well beyond 2011 need to be put in place urgently to lock in benevolent market sentiment," the IMF said in its "Fiscal Monitor" report.

"Renewed market pressures in some advanced economies demand that these countries underline their commitment to their deficit targets and devise contingency plans to ensure that adjustment goals are met," the IMF added.

The deepest global recession since the Great Depression forced rich countries to dig deep into their pockets to support their economies, pushing debt loads to record levels in some countries.

Financial markets have punished some European nations for not keeping a better control on their finances, forcing governments to launch budget austerity plans. The IMF said earlier this week that Europe's debt crisis posed one of the gravest risks facing the global recovery.

In its latest report, the fund said large European countries will all tighten their budgets this year broadly in line with earlier plans, with Spain's cuts the largest. But it said Europe needed a more comprehensive approach to crisis management to avoid spillovers and to "break the fiscal-financial spiral".

In a warning to emerging markets, the IMF said fiscal balances in Brazil, China and India were weaker than the IMF projected in November, noting the deterioration in Brazil's fiscal accounts was "particularly pronounced."