Global fiscal adjustment is in face of new challenge as the world economy is slowing, making harder for policymakers to balance fiscal problem and economic growth, said the International Monetary Fund (IMF) on Tuesday.

"Global policymakers face the dilemma of how best to respond to the challenges of slackening global activity and continued financial volatility without losing sight of their medium-term adjustment needs," noted the IMF in its latest Fiscal Monitor report.

For countries with fiscal space, near-term fiscal adjustment plans should be calibrated to avoid undue pressures on economic activity and employment, while countries with enough fiscal space could consider slowing the pace of near-term adjustment to reduce downside risks, said the report.

In its World Economic Outlook (WEO) report released earlier, the IMF said that downside risks to global economy still remain elevated after suffering a major setback during 2011.

The WEO report projected that the world economy would grow by 3. 5 percent in 2012, adding the risk of another crisis was still very much "present" and could well affect both advanced and emerging economies.

If economic growth slows further, countries with fiscal space should allow the deficit to rise to avoid excess fiscal contraction, which could worsen economic conditions, asserted the IMF.

However, short-term caution should not be "an excuse" to slow or delay efforts to put public finances on a sounder footing over the medium term, as this is vital for sustainable growth.

Not only advanced economies but also emerging countries have to continue fiscal adjustment overtime, said IMF Fiscal Department Director Carlo Cottarelli at the launch ceremony of the Fiscal Monitor report.

"Adjustment is taking place, but there is still a long way to go."

With respect to policy implementation, Cottarelli said that fiscal adjustment should proceed at a steady pace. "Not too fast or too slow, if there is fiscal space."

In addition, growth enhancing measures, which are very important for the fiscal accounts, should be activated, he pointed out.

As fiscal adjustment is underway, continued fiscal tightening is in store this year, particularly among advanced economies, said the IMF, adding that deficits will drop by almost 1 percentage point of GDP among those economies in 2012.

Though the fiscal conditions of emerging economies remain healthier than those in advanced economies, emerging economies would continue to be exposed to negative spillovers if global conditions deteriorate.

While past efforts with fiscal consolidation are beginning to bear fruit, fiscal risks are still very high overall, noted the report.

"In this uncertain environment, the challenge for fiscal policy is to find the right balance between exploiting short-term space to support the fragile recovery and rebuilding longer-term space by advancing fiscal consolidation," the report added.

The report was released prior to the Spring Meetings of the IMF and its sister agency World Bank, scheduled to kick off on April 20 in Washington D.C., gathering central bank governors, finance ministers and other experts to discuss key global economic issues and policy action.