WASHINGTON, May 26 (Reuters) - The International Monetary Fund on Wednesday urged New Zealand to step up efforts to limit an increase in public debt, saying it would relieve pressure on monetary policy and the exchange rate.
Staff papers released on Wednesday, which detail IMF annual economic consultations with New Zealand, show the mission advised the government to restrain spending to return the budget to a surplus earlier than planned.
But IMF staff said the government decided its own plan was appropriate. The government has proposed reducing the budget deficits gradually by curbing spending, aiming for a balanced budget by 2016.
Staff recommended returning the budget to surplus by 2014, unless risks to growth rise.
The Fund repeated earlier estimates that the New Zealand dollar NZD= was overvalued by 10 to 25 percent.
"Faster consolidation over the next 3-4 years would take pressure off monetary policy and the exchange rate, thereby helping rebalance the economy toward the tradables sector and contain the current account deficit," according to the papers.
While New Zealand's economy was not as hard hit by the global financial crisis as other advanced countries, the IMF said high household debt and costlier credit could weigh on the growth of private consumption and investment.
The IMF projects that over the medium term, New Zealand's growth is likely to ease to 2.3 percent from about 3 percent in 2010 and 2011.
The biggest downside risks to the growth outlook are if Chinese demand drops sharply, pushing down commodity prices, and if the global economic recovery stalls, the IMF said. (Reporting by Lesley Wroughton; Editing by John O'Callaghan)
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