Japan, Italy, Portugal face debt stress

Government debt will persist as a major problem in Japan until 2084, and in Italy until 2060, the International Institute for Business Development said in a new debt-stress index released yesterday.

The Swiss business school, best known by its initials IMD, said the United States was set to bring its debt burden to 60 per cent of gross domestic product by 2033, so long as budget deficits are eliminated by 2015.

"What matters is not only the absolute size of public debt but also the length of time required to absorb it," said IMD Professor Stephane Garelli. "In the end, debt-stricken nations may suffer losses of competitiveness and standards of living."

The IMD index projects that Greece, whose debt levels have sparked a crisis for the euro zone, would get into fiscal shape in 2013, before the European Union's major economies.

Its calculation, which projects countries' economic growth rate continuing at their 2000-2009 average, and excludes big shifts in interest rates or health and pension costs, said Germany and Britain should reach 60 per cent of GDP by 2028, with France the following year.

Portugal was the third-most debt-stressed nation in the index, seen taking until 2037 to reach the 60 per cent level that the International Monetary Fund considers a "bearable" ratio of public debt to GDP.

Belgium was fourth, projected to take until 2035, though the IMD said the country's indebtedness was principally to domestic creditors, unlike Greece and Portugal which owe more funds to foreign institutions.

Argentina, Brazil and India were among those expected to reduce their debt burden to the IMF benchmark by 2015, while Turkey, Switzerland and China were already below the 60 per cent level as of last year, the index found.

In a separate index, also released yesterday, the IMD named Singapore, Hong Kong and the United States as the world's three most competitive economies in 2010, and warned that the European Union could face extended woes. Qatar figured at 15 of the 20 most competitive economies.

Technological prowess and strong business leadership helped the US weather the financial and economic crisis, while Singapore and Hong Kong have benefited from the strong recovery in Asia, the IMD said.

While praising Germany's strong export growth and excellent infrastructure, it warned that questions about the creditworthiness of Spain, Portugal and Greece would act as a drag on growth and business development in southern Europe.

"It is unfortunately to be expected that these three nations, which have all significant budget deficits, growing debt and weak trade performance, will suffer from further recession this year," it said, also raising concerns about the high budget deficit level in Ireland.

"This crisis will test the credibility of the euro," the IMD concluded in the World Competitiveness Yearbook. "The only good news is that a weak euro can boost exports."

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