IMF Fiscal Monitor Urges Governments to Increase Value of Public Spending for Growth
SDG 8: Decent Work and Economic Growth | SDG 16: Peace, Justice and Strong
Institutions Institutions: Ministry of Finance | NITI Aayog
A new chapter from the IMF Fiscal Monitor: October 2025, titled “Spending Smarter,” finds that persistent weak economic growth and elevated public debt require governments globally to re-examine how they allocate and execute their budgets. The report identifies two major issues hindering economic recovery: poor allocation and low efficiency. Globally, public spending is not sufficiently pro-growth, with only 18% of total spending going to public investment and 11% to education, while unproductive public wage bills remain high. Crucially, efficiency gaps persist at 31% in advanced economies and 34% to 39% in emerging and low-income markets, meaning countries could get 30 to 40 per cent more value for money by adopting best practices. The IMF finds that closing these gaps and reallocating resources to infrastructure and human capital could boost output by up to 7.5% over the long term.
This report provides a quantitative justification for India’s ongoing structural reforms. As an emerging market, India faces an average 34% efficiency gap, highlighting massive untapped potential. The findings mandate increasing the allocation of funds toward infrastructure (PM-Gati Shakti) and human capital, supported by strong institutional frameworks (less corruption and rigorous Public Investment Management Assessment processes) to realize the full long-term output gains.
What is Public Spending Efficiency? It measures how effectively a government maximizes outcomes (e.g., better infrastructure, higher education enrollment) for a given level of public expenditure input. It matters because closing the efficiency gap—which can be up to 40% for some countries—magnifies the positive economic impact of all pro-growth spending.
Relevant Question for Policy Stakeholders: How can NITI Aayog and the Ministry of Finance institutionalize independent, mandatory “Spending Reviews” to reduce budget rigidity and systematically close the public spending efficiency gap in key infrastructure sectors?
Follow the full update here: https://www.imf.org/-/media/Files/Publications/fiscal-monitor/2025/October/English/ch1.ashx
https://doi.org/10.5089/9798229024938.089