## EXECUTIVE SUMMARY

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### Global context and central message
- Global growth remains lackluster, and public debt is high and rising, with increasing defense spending, aging populations, and higher interest rates putting additional strain on public finances.
- Governments should take decisive action to strengthen economic growth and rationalize public spending to improve living standards and alleviate fiscal pressures.
- This Fiscal Monitor explores how enhancing spending efficiency and strategically reallocating resources—particularly toward infrastructure, human capital, and research and development—can improve growth prospects, without increasing overall spending.

### Observed spending patterns and efficiency gaps
- Over past decades:
  - Public investment as a share of total spending has declined.
  - Expenditure on public education has stagnated.
  - Wage bills are significant, and public sector wages often exceed those in the private sector, distorting labor markets.
  - Rigid spending structures, especially in advanced economies and large emerging market economies, limit the scope for meaningful reform.
- Spending efficiency gaps (the difference between actual outcomes and best outcomes achievable with the same resources):
  - about 31 percent in advanced economies
  - 34 percent in emerging markets
  - 39 percent in low-income developing countries

### Growth gains from reallocating spending
- Redirecting spending toward areas that increase productive capacity can raise long-term output. Examples from global data, reform episodes, and model simulations:
  - Increasing infrastructure investment by 1 percent of GDP, while keeping overall spending constant by cutting government consumption (such as administrative overhead), is associated with long-term output increases of:
    - about 1½ percent in advanced economies
    - 3½ percent in emerging market and developing economies
  - Increasing education spending yields estimated long-term benefits of:
    - about 3 percent in advanced economies
    - 6 percent in emerging market and developing economies

### Magnification through improved spending efficiency
- Closing efficiency gaps can increase output further:
  - an additional 1½ percent in advanced economies
  - an additional 2½ to 7½ percent in emerging market and developing economies over the long term
- Faster progress in closing gaps yields even greater benefits.
- Complementary policies amplify gains:
  - Combining investments in human capital and infrastructure in emerging market and developing economies.
  - Integrating spending on public education and research and development or fostering technology diffusion in advanced economies.

### Institution-building and governance reforms to raise efficiency
- Priority reforms to increase spending efficiency:
  - Combat corruption and enhance transparency and accountability through robust expenditure control mechanisms and published budgets.
  - Ensure public procurement processes are competitive and transparent, especially in advanced economies where procurement accounts for a large share of GDP.
  - Strengthen systems for the management of public investment, including improving project appraisal and ensuring maintenance funding.
  - Improve budget processes, including implementing multiyear frameworks to connect strategic spending plans with annual budgets.
  - Leverage digitalization to improve public finance operations and service delivery.
  - Expand private sector involvement by outsourcing noncore government functions and collaborating on investment projects, while carefully managing fiscal risks.

### Reforms to create fiscal space and promote equity
- Reforming pension and health care systems to ensure sustainability can create space for growth-enhancing spending.
- Align public sector wages with private sector benchmarks to manage public wage bills.
- Better targeting of social assistance programs, including consolidating fragmented initiatives in low-income developing countries, can alleviate fiscal pressures.
- Evidence indicates there need not be a trade-off between pro-growth and equitable spending; public spending on investment and education can effectively reduce income inequality.

### Practical tools and implementation
- Governments should leverage spending reviews to optimize existing resources and ensure public money delivers lasting benefits.
- To maximize impact, design spending reviews thoughtfully and integrate them into budgetary processes.
- Countries with limited capacity can incorporate elements of review frameworks such as benchmarking and performance indicators.

*FISCAL MONITOR: SPENDING SMARTER: HOW EFFICIENT AND WELL-ALLOCATED PUBLIC SPENDING CAN BOOST ECONOMIC GROWTH — International Monetary Fund | October 2025*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2025/october/english/execsum.pdf_