Paris: The International Monetary Fund warned France Wednesday it would miss its three per cent deficit target for 2013 unless it took further steps to cut medium-term spending, which were needed to safeguard its AAA credit rating.

With France gearing up for presidential elections in April, the Fund backed President Nicolas Sarkozy's proposal to write balancing the budget into the constitution — a move bitterly opposed by the opposition Socialist Party.

Sarkozy has staked his reputation on cutting France's deficit from 7.1 per cent of GDP last year to the limit of three per cent under the euro zone's Stability and Growth Pact by 2013.

Budget Minister Valerie Pecresse said yesterday that pledge was "sacrosanct."

In its annual review of France's economy, the Fund said it expected growth and tax revenues to miss government projections. It forecast France's deficit would decline from 5.7 per cent of GDP this year to 4.8 per cent by 2012 but not fall below 3.8 per cent by the end of 2013.

"Under staff's current projections, achieving the deficit target of three per cent of GDP by 2013 requires further measures," the report said.

With tax rates already amongst the highest in Europe, France's only option was for the government to reduce its spending to meet its fiscal targets, the IMF said, particularly in areas such as pensions and health care.

The Fund said a reduction in the deficit of 0.2 per cent of GDP was needed in 2012 and 0.6 per cent in 2013.

Airlines suffer losses

Air France-KLM said its first-quarter net loss narrowed to €212 million (Dh1,118 million) from €252 million (Dh1,329 million). Air France said it still expects to post positive full-year operating profit.

Meanwhile, Lufthansa, reported Wednesday a net loss of €206 million ($299 million) for the first half of 2011, but maintained its outlook for the year. The company said in a statement it did manage to turn a small operating profit of €3.0 million over the period. The group announced a net loss of €206 million for the first six months of the year, almost double the €104 million loss for the corresponding period in 2010.