BEIJING -(Dow Jones)- The International Monetary Fund on Sunday urged nations, particularly in advanced economies, to pare their fiscal deficits and debt levels to prudent levels by carrying out pension and health entitlement reforms.

IMF First Deputy Managing Director John Lipsky said in prepared remarks delivered in Beijing that high public debt and fiscal deficits have already raised the risk premium for several countries, and could lead to higher interest rates and slower economic growth in the medium term.

"We have estimated that maintaining public debt at its post-crisis levels could reduce potential growth in advanced economies by as much as 0.5 percentage point annually compared with pre-crisis performance," he added.

"For most advanced economies, including several of the largest, maintaining fiscal stimulus in 2010 remains appropriate, but fiscal consolidation should begin in 2011, if the recovery occurs at the projected pace," he said.

He said unwinding stimulus programs introduced during the financial crisis won't be enough on their own. "Such measures have accounted for only about one-tenth of the projected debt increase. Thus, merely winding down the stimulus won't come close to bringing deficits and debt ratios back to prudent levels, considering the projected increases in health care of other entitlement spending."

He urged governments to strengthen fiscal institutions and carry out entitlement reforms, such as increases in the retirement age, to help bring down debt and deficits.

Lipsky also described China's plan to keep stimulus this year while reining it credit growth as "fully appropriate," and noted Beijing's shift toward public spending away from infrastructure toward the social sphere.

He cited a recent IMF staff study as showing that a sustained rise in Chinese public spending -- amounting to 1% of economic production -- on health, education and pensions could lead to a permanent rise in household consumption amounting to more than 1% of gross domestic product.

On how fiscal policy could help rebalance the global economy, he said building social safety systems in emerging markets would boost consumption, while fiscal consolidation in the U.S. would help reduce its current-account deficit.

Europe and Japan could, for instance, better target their social benefits and reduce exemptions on indirect taxes, he added.

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