Australian Treasurer Joe Hockey is discussing with state governments plans to privatize assets to raise as much as 130 billion Australian dollars ($117 billion), the finance minister said on Thursday.

The revenue-raising negotiations come as the International Monetary Fund highlighted the challenge Australia faces to return its budget to surplus following the global financial crisis. The federal budget is headed for a AU$47 billion deficit in the current fiscal year that ends June 30. Gross debt is on track to peak at AU$667 billion, according to latest government projections.

Finance Minister Mathias Cormann was not specific on what assets were being considered for sale, aside from his government's plan to sell health insurer Medibank Private, which is estimated to be worth up to AU$4 billion.

Hockey, who chairs a meeting of G20 finance ministers in Sydney this month, will likely reveal more of his privatization plans when he delivers his conservative government's first annual budget to Parliament on May 13.

His coalition took office after winning elections last September after five years in opposition.

"There is opportunity for both the federal government and state and territory governments to recycle capital by selling infrastructure which appropriately can be sold and then reinvest the capital ... which will help us grow the economy more strongly and create jobs," Cormann told Australian Broadcasting Corp. radio.

Cormann said AU$130 billion "is the potential."

Economic analyst ANZ Research said in a note to clients that the proposed asset sales suggested the government will put in place policies in the May budget to give the states incentives to move quickly.

It said the greatest beneficiaries would likely be the New South Wales and Queensland state governments, which own the majority of public sector assets.

The IMF warned the federal government that it will have to make "sizeable cuts" in projected spending if it is to return the budget to surplus and maintain it.

"We are very conscious of the challenge in front of us. The treasurer and I are very focused on turning the situation around that we've inherited," Cormann said.