The International Monetary Fund warned that many wealthy countries were approaching debt levels that could spark a market-wide panic, but suggested fears of governments defaulting on their skyrocketing debts was overstated.

In three reports evaluating the debt levels of 23 advanced economies, the IMF warned that Greece, Italy, Portugal and Japan were most at risk of running out of fiscal room.

Lumped into a second block of threatened countries were the United States, Britain, Spain, Iceland and Ireland. Those countries with the most fiscal space to deal with any new threats to the global economy were Australia, Denmark, South Korea, New Zealand and Norway.

Reaching their debt limits could prompt markets to massively raise interest rates on government debt, much as happened with Greece earlier this year. But the IMF stressed that countries approaching the top limits of their budget deficits did not automatically cause an adverse market reaction.

The IMF also said the risk of one of these countries being forced to restructure their debt was being "significantly overestimated" by the markets.

Source: Agencies