IMF urges sustained French budget squeeze to rein in deficit

PARIS (Reuters) -France needs to make a new and sustained push to rein in its budget deficit and get its rising debt under control, the International Monetary Fund said on Thursday in an annual review of the French economy.

The French government is struggling to get its public finances back under control after spending spiralled higher last year and tax income fell short of expectations as a snap legislative election delivered a deeply divided parliament.

The IMF said it expected the government to meet its 2025 public sector budget deficit target of 5.4% of economic output but warned without additional measures the shortfall would remain around 6% in the medium term and debt would keep rising.

It said France needed a "credible and well-designed package of measures" focused on rationalizing spending while also better targeting welfare benefits on those who need them most.

The IMF added that France would need a budget squeeze equivalent to 1.1% of GDP in 2026, followed by an average of about 0.9% of GDP per year over the medium term, which it said was broadly in line with the current government's plans.

"Getting our public spending under control is key for our future. It's our priority and our compass for building the 2026 budget," Finance Minister Eric Lombard said in a statement to Reuters.

Centrist Prime Minister Francois Bayrou's minority government is trying to come up with 40 billion euros ($45 billion) in budget savings to cut its fiscal deficit to 4.6% of economic output next year, but many of the measures floated so have found little political support.

Without a majority in parliament, Bayrou's government depends on the goodwill of Socialist lawmakers to pass budget legislation - and survive any no-confidence motions lodged by rivals on the far left and hard right.

The IMF forecast that the euro zone's second-biggest economy would grow 0.6% this year and 1.0% in 2026, slightly less optimistic that the government's estimates for 0.7% this year and 1.2% in 2026.

($1 = 0.8834 euros)

(Reporting by Leigh Thomas; Editing by Toby Chopra)