"Let me be clear: in many countries, especially in the advanced economies, fiscal adjustment is essential," Lagarde said in speech at Brookings Institution in the US.
"But the pace of adjustment matters. And it must be country-specific.
"Yes, some countries have no choice but to adjust now, sharply and quickly. But that is not true across-the-board."
"Other advanced economies can be more gradual in reducing deficits—they can allow automatic stabilizers to operate, letting tax revenues fall and spending rise if their economies weaken.
"Others still have the flexibility to reconsider the pace of deficit reduction this year, to limit the harm to growth."Lagarde said loose monetary policy (money printing) could support where inflation remains in check but emerging nations should be careful of credit bubbles.
"Monetary policy can also support growth where inflation remains in check—as is the case at present in virtually all advanced economies," Lagarde said.
"For emerging economies, a bit more caution is required, especially if rising oil prices and extended credit booms begin to test the bounds of inflation."
A US economic and credit bubble crashed in 2007 following years of state intervention to keep interest rates low by printing money by the Federal Reserve, amid a large deficit to fight wars.
Classical economists have said that that Europe, in a bid to not let the Euro appreciate too much to pander to exporter interests, also printed too much money and fired a bubble.
Only countries like Australia and Canada which kept interest rates high despite pressure from exporters and other and allowed sharp appreciations of their currencies, avoided a credit bubble, bank runs and an economic collapse.
Low interest rates triggers mal-investment and asset price bubbles, which eventually results in bad loans and banking sector collapses when interest rates are raised finally.
Critics have said that budgets and national debt of many countries - especially in Europe - went bad because they engaged in 'stimulus' to boost growth turning a banking crises into fiscal crisis acting under IMF advice in some cases.
Lagarde said putting fiscal balances in better shape would help restore confidence.
"Grounding adjustment in credible medium-term plans—as is needed in the U.S. and Japan, for example—will not only help address fiscal concerns, but also reinforce confidence and growth," she said.
"Low-income economies also need to strike the right balance. Even as they are being hit by reduced aid flows and reduced remittances, they must guard against current risks—especially those radiating out of Europe. Rebuilding their policy buffers is a priority."
IMF said it was asking to 'rebalance the global economy' by shifting demand from countries with external deficits to surplus countries.
"We are seeing some promising signs—in China, for example, albeit partially. But we know that more needs to be done," she said.
These kinds of policies will help to get growth restarted over the short-term. Over the longer-term, we must work toward growth that is more inclusive and more durable.
Clearly, the rebalancing of the global economy—a shift in demand from external deficit to surplus countries—is key and something that the IMF has been advocating for some time. It is even more important now.
"We are seeing some promising signs—in China, for example, albeit partially. But we know that more needs to be done."