IMF warns France over rising fiscal deficits

WASHINGTON (Reuters) - The International Monetary Fund on Sunday said the recession will lead to "uncomfortably high fiscal deficits" in France and any further stimulus measures to boost the economy should be small and temporary.

The IMF called for "decisive implementation" by Paris of a clear strategy to put public finances on a sounder footing in the country's 2010 budget.

"France's main fiscal challenge remains to consolidate its public finances as current policies would lead to an unsustainable debt dynamics," the fund said in a statement following consultations with the French government.

"Looking ahead, rising debt-service obligations will aggravate the fiscal costs related to population aging," it added.

The IMF said past history has shown that successful fiscal consolidations were often launched in the midst of economic downturns or the early stages of recovery, and such efforts were more successful when focusing on the reduction of current expenditures rather than on revenue measures.

The fund said the economic contraction in France is likely to slow during the remainder of 2009 with a sluggish recovery expected next year.

"The expected gradual recovery of the global economy and France's longstanding supply rigidities are likely to weigh on the upturn," the IMF said. It also said annual consumer price inflation will dip below zero during the summer months, but should rebound somewhat in 2010.

Pressures on bank earnings and profitability in France are mounting, the IMF said, adding the financial turmoil will likely continue to exert an adverse impact for some time.

It said additional measures to stabilize the financial sector in France may be necessary with toxic assets still on banks' balance sheets and further bank losses and write-downs still possible.