IMF Advises Government Spending Reforms To Boost Economic Growth

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The International Monetary Fund (IMF) has said member countries must embark on government spending reforms, stating that in many countries, public finances remain on edge as economies struggle to return to pre-crisis levels of economic growth.

At the ongoing Spring Meeting it highlighted the need for governments to embark on growth supporting fiscal reforms that will bring socio-economic benefits to their citizenry.

It said that ensuring the sustainability of public finances requires difficult choices on both the taxation and spending sides of the budget.

“While tax reform can help boost potential growth through the removal of distortions, spending reforms help strengthen public service delivery.

“Coupled with the projected increase in age-related expenditures resulting from an aging population, pressures on government spending in the future will only increase.”

The fiscal monitor sets out the main elements needed for meaningful spending reform: ensuring the sustainability of social spending and public sector wages, noting that health care systems in many countries have room to improve efficiency without drastically cutting services.

It said that for public pension systems, raising the retirement age and adjusting contributions and benefits are the key options.

It further said that containing the growth of the public sector wage bill in a lasting way would require replacing the across-the-board wage and hiring freezes with deeper, efficiency-enhancing structural reforms supported by social dialogue.

It added that fiscal reforms by governments require achieving efficiency gains, while aiming to reduce inequality and that large gains can be made in some countries by improving the efficiency of spending on education.