There is wide spread apprehension that many advanced country governments will not be able to wind down borrowing because of demographic factors and consequent growing social security payments. IMF studies estimate that even if the governments in the advanced economies reverse the crisis induced fiscal stimulus, these economies will still end up with a structural primary deficit of 2 per cent of GDP.
Government debt in the advanced economies is projected to jump from the pre-crisis level of 78 per cent of GDP in 2007 to 118 per cent by 2014 assuming some discretionary tightening beginning this year. In such a scenario, what are now seen as cyclical fiscal deficits may, in fact, morph into structural fiscal deficits.