The IMF has warned that developed countries with big budget deficits should now be preparing to warn citizens they will need to tighten their belts, with another difficult economic period around the corner.

The first deputy manager of the International Monetary Fund, John Lipsky, has told a university audience in Palo Alto, California that fiscal adjustments needed will involve spending cuts, fewer health and pension benefits and increased taxes.

Lipsky said several countries with particularly high debt and deficits will be financially strained as stimulus packages stop and economic consolidation begins.

He said if the global economic recovery remains on track, policymakers should make clear that prudent policies will be necessary for sustained economic health.

He suggested that fiscal institutions would have to be strengthened to withstand the adjustments.