Efficient Public Spending: Key to Economic Growth
Washington, D.C., Friday, 17 October 2025.
The IMF’s latest report emphasizes that improving public spending efficiency, rather than increasing budgets, is crucial for long-term economic growth by reallocating funds to infrastructure, education, and health.
The Role of Public Spending Efficiency
The International Monetary Fund’s (IMF) latest Fiscal Monitor report underscores the importance of enhancing public spending efficiency for sustainable economic growth. By redirecting resources towards infrastructure, education, health, and research and development, governments can achieve substantial long-term economic benefits without increasing their overall spending [1]. The report emphasizes that closing efficiency gaps and investing in institution-building are effective strategies for maximizing output gains [1].
Global Implications and Strategies
The report, published on 16 October 2025, presents new global datasets on public spending efficiency, which are vital for policymakers aiming to drive sustainable growth [1]. According to Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department, ‘Spending smarter can boost economic growth without increasing the overall spending envelope’ [1]. This suggests that focusing on the efficiency of spending rather than its quantity can yield significant economic benefits, particularly in regions facing fiscal constraints [6].
Challenges in Low-Income Economies
The report highlights specific challenges faced by low-income countries, particularly in Africa, where efficiency gaps in infrastructure can substantially elevate long-term output if addressed [7]. Era Dabla-Norris, Assistant Director at the IMF, noted that ‘Excessive rigidity can block necessary reforms,’ emphasizing the need for flexibility in budget composition and execution [7]. The median efficiency gap for public infrastructure in sub-Saharan Africa is reported to be 61%, demonstrating the significant potential for improvement [7].
Policy Recommendations for Growth
To enhance public spending efficiency, the IMF recommends strengthening budget processes, improving procurement systems, and utilizing digital tools for financial management [7]. These measures can help optimize resources and ensure that funds are used effectively. The IMF also suggests reallocating just 1% of GDP from less impactful to more impactful spending, which could increase output by up to 6% [7]. This strategic reallocation underscores the profound significance of smarter public spending in achieving economic growth.