Fiscal challenge
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By agreeing on the need for fiscal consolidation at the fourth Group of 20 (G20) summit in Toronto, global leaders have plumbed ahead with a determination unseen of late to end the rapid build-up of public debt.
Policymakers must face up to fiscal challenges sooner, or else they risk leaving unaccomplished the necessary, though painful, fiscal adjustments needed to restore their nations' long-term productivity and competitiveness.
Swift implementation of unprecedented stimulus programs in the world's biggest economies have so far successfully prevented a depression, yet it also added trillions of dollars to their national debt. The fragility of the current global recovery as well as differing national circumstances have prompted G20 leaders to acknowledge that synchronized fiscal adjustment could adversely impact ongoing economic recovery.
However, to square the circle of growth and fiscal stability, it is imperative for those countries facing serious fiscal challenges to accelerate the pace of consolidation.
The G20 summit endorsed a goal for advanced economies to cut government deficits in half by 2013 and stabilize the ratio of public debt to gross domestic product by 2016.
Unlike expensive stimulus programs that G20 countries adopted at previous meetings, the fiscal reform push will be far more difficult to devise and politically hard to execute at home. Yet, fiscal sustainability is essential to any lasting recovery. Policymakers should do their utmost to promote fiscal consolidation, which entails short-term pain for long-term gain.
A "spirit of unity", as President Hu Jintao urged, on the part of world leaders is not only needed to shake off the impact of the global financial crisis, but also necessary in debt-ridden states so as to enable its citizens to bear the burden of deficit reduction as equitably as possible.
