## G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth — Executive Summary and Selected Chapters

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### Assessing progress toward strong, sustainable, balanced, and inclusive growth
- Overall assessment
  - G20 growth has been resilient over the past year despite a series of shocks.
  - Medium-term growth prospects remain constrained by structural factors and policies.
  - Expected medium-term G20 growth is "at just 3 percent", described as close to their weakest since the SSBIG Framework launch in 2009.

- Near-term developments and drivers
  - Some progress toward strong and sustainable growth over the past year; more limited progress toward balanced and inclusive growth.
  - Majority of G20 advanced economies assessed to have made "moderate or substantial progress" towards strong growth relative to the 2025 edition.
  - Resilience factors include "unexpected easing of global financial conditions, including the depreciation of the US dollar."
  - Two opposing near-term forces:
    - Negative supply shock from the war in the Middle East, raising energy prices and contributing to upward revisions in inflation projections and expectations for tighter monetary policy across the G20.
    - Positive momentum from advances in and deployment of artificial intelligence (AI), offsetting drag in economies that are net exporters of AI-related inputs (examples cited: Korea and the Netherlands).

- Medium-term outlook and convergence
  - Medium-term per capita real GDP growth remains weak compared to 2009; slowdown pervasive across G20 advanced and emerging market economies, with few exceptions (notably, the United States and Türkiye).
  - Convergence in per capita income relative to the United States has, in most cases, stagnated or widened. Meaningful reductions since 2009 only in China, India, Indonesia, Korea, and Türkiye.
  - Based on recent rates of improvement, "it could take more than 50 years for the average G20 emerging market economy" to converge to the United States (calculation assumption provided in source).

- Fiscal and external considerations
  - Elevated public debt levels and rising interest rates strain public finances; absent fiscal consolidation, could result in destabilizing debt dynamics.
  - Many G20 economies resorted to fiscal policy tools in response to the war in the Middle East and are expected to maintain expansionary fiscal policy stances over the medium term.
  - Global current account balances widened for the second successive year in 2025; increase driven primarily by China though the United States deficit remains the largest and has widened since 2009.

### Impediments to growth — survey findings and evidence
- Framework and tradeoffs
  - Policies and regulations can address market failures and improve welfare but can also generate tradeoffs that weigh on growth when excessive or poorly designed.

- Key impediments identified by IMF SSBIG survey of country teams
  - Common across G20 economies:
    - Excessive business regulations.
    - Underdeveloped capital markets.
  - G20 advanced economies:
    - Burdensome labor and product market regulations.
    - Inadequate policies to address demographic challenges in many economies.
    - Investment hindered by housing and zoning restrictions and, in some cases, underdeveloped capital markets.
    - Within the European Union: fragmentation from variations in business regulations, professional licensing and permits, and financial market structures impeding resource allocation across member states.
  - G20 emerging market economies:
    - Excessive labor and product market regulations.
    - Barriers to labor mobility and firm expansion in some economies.
    - Investment held back by underdeveloped capital markets, weaknesses in public investment management, and deficiencies in governance and institutional quality.
  - Empirical evidence:
    - Market-liberalizing and deregulatory reforms can boost investment and growth where existing regulatory burdens are relatively high.

- Survey-specific definitions and thresholds (medium-term growth impacts)
  - Minor impediment: negative impact between -0.1 and -0.5 percentage points.
  - Moderate impediment: impact between -0.5 and -1.0 percentage points.
  - Major impediment: impact larger than -1.0 percentage points.
- Selected survey outcomes (April, 2026 assessments)
  - About half of G20 advanced economies and nearly three-quarters of G20 emerging market economies face growth impediments from overly restrictive labor market, product market, or consumer regulations.
  - G20 advanced economies: more than half assessed as having inadequate policies to address demographic challenges; old-age dependency ratios have risen to over 30 percent.
  - Intrajurisdictional barriers: EU faces moderate impediments in all sub-areas; more than half of G20 emerging markets subject to intrajurisdictional barriers; South Africa identified as major impediment; China faces a major impediment from Hukou-related labor mobility barriers.
  - Investment barriers in G20 emerging markets: underdeveloped capital markets, poor public investment management, and weak governance/institutions. Underdeveloped capital markets assessed as moderate impediment in Argentina, China, Saudi Arabia, and Türkiye. Weak public investment management assessed as a major impediment in South Africa.
  - Housing and zoning constraints: major impediment in the United Kingdom; moderate impediments in Australia, Canada, and Korea. Underdeveloped capital markets an impediment in advanced economies such as Italy.

### Getting regulation right — constraints, evidence, and sectoral examples
- Reform trajectory and constraints
  - Reform implementation has declined in recent decades due to political economy impediments and sequencing challenges.
  - Political economy factors identified as the main challenge to reform implementation in most G20 economies; more severe in G20 emerging markets with major obstacles in Argentina, China, India, and South Africa, and moderate obstacles in Brazil and Türkiye. G20 advanced economies with challenges include Canada, France, Germany, Italy, and the United Kingdom. The European Union faces significant coordination challenges.

- Empirical takeaways
  - Deregulation and market-liberalizing reforms can deliver measurable gains in investment and output per capita, particularly where initial regulatory burdens are high.
  - United States evidence:
    - A one-standard deviation increase in a news-based measure of deregulation is associated with an increase in investment per capita of around 75 basis points after one year and by more than 1 percent over the medium term.
    - Output per capita increases by about 25 basis points after one year and 50 basis points over the medium term in the United States.
  - State dependence:
    - Regulatory changes generally produce larger output responses in less liberalized economies.
    - Labor market deregulation associated with significant gains in GDP per capita when initial employment protection is high.

- Sectoral examples and quantitative estimates
  - Construction and land-use regulation:
    - U.S. construction sector labor productivity fell by more than 30 percent between 1970 and 2020 (Goolsbee and Syverson, 2023).
    - Land-use regulation contributed one-third of the decline in trend GDP growth since World War II (Foerster and others, 2022).
  - Fragmentation and internal trade:
    - Removing cross-border financial frictions in the EU could raise long-run GDP by about 3 percent (Brandão-Marques and others, 2026).
    - Eliminating non-geographic barriers to internal trade in Canada could increase real GDP by nearly 7 percent in the long run (Diez and Yang, 2026).
  - Regulatory compliance costs:
    - Between 3.2 and 4 percent of labor in the United States, Australia, and Europe allocated to compliance tasks, constituting a direct drag on output of around 1-2 percent of GDP (Trebbi and others, 2026; Andrews and others, 2026).

- Telecommunications, ICT investment, internet diffusion, and AI preparedness
  - Market-friendly telecom reforms since the mid-1990s associated with stronger ICT-related capital investment and earlier internet penetration increases.
  - Household-level finding: a 10 percentage-point increase in national internet penetration is associated with about a 5 percentage-point increase in the probability that a household reports home internet access.
  - Distributional pattern:
    - Low-income households remain persistently less connected even as national internet penetration increases.
    - In advanced economies, higher national internet penetration associated with stronger increases in home internet access among lower-income households relative to higher-income households.
  - Countries with broader internet penetration score higher on IMF’s AI Preparedness Index (AIPI).

### Model simulations, policy mix, and projected macro outcomes
- Simulation context and horizon
  - Quantitative analysis uses the IMF economic model for the G20. Long term refers to 2036.
  - Simulations do not consider policy recommendations for, or spillovers to, the African Union.

- Macroeconomic policy effects
  - Adopting recommended macro policies would weigh on output in the short and medium term due to demand effects of tighter fiscal policy; effects more pronounced for advanced economies as a whole because of sizeable fiscal adjustment recommended in the United States.
  - Simulated fiscal consolidations preserve growth-enhancing public investment.
  - Over the longer term, growth rises as lower public debt reduces global interest rates, stimulates investment and raises output.

- Structural reform effects and country patterns
  - Recommended structural reforms increase output in both advanced and emerging market economies, with largest gains over the medium and long term.
  - High-impact country examples:
    - Advanced economies: innovation and R&D reforms significant in Canada and Italy; business regulation and labor market reforms boost Australia and Germany.
    - Emerging markets: governance and business regulation improvements yield larger gains in Mexico and South Africa; fiscal and external reforms important for Argentina and Brazil.
  - Correspondence principle:
    - Governance and fiscal reforms prioritized where governance/public investment management are significant impediments.
    - Business regulation reforms prioritized where excessive product/consumer regulation or intrajurisdictional variation cited.
    - Monetary and financial sector reforms prioritized where underdeveloped capital markets constrain investment.

- Fiscal space and public debt categorizations (as used in simulations)
  - "Substantial": AUS, DEU, KOR, RUS, SAU.
  - "Some": BRA, CAN, CHN, FRA, GBR, IDN, IND, JPN, MEX, TUR, USA, ZAF.
  - "At risk": ITA.
  - "None": ARG.
  - RUS: policy recommendations are not available.

- Aggregate simulation results — selected real GDP growth (percent) historical and projections
  - World: 2024 = 3.5; 2025 = 3.5; 2026 = 3.0; 2027 = 3.4; 2030 = 3.0; 2031 = 3.0.
  - G20 (aggregate): 2024 = 3.5; 2025 = 3.4; 2026 = 3.1; 2027 = 3.2; 2030 = 2.9; 2031 = 3.0.
  - G20 Advanced (aggregate): 2024 = 1.7; 2025 = 1.5; 2026 = 1.6; 2027 = 1.7; 2030 = 1.4; 2031 = 1.4.
  - G20 Emerging (aggregate): 2024 = 4.9; 2025 = 4.7; 2026 = 4.2; 2027 = 4.3; 2030 = 3.9; 2031 = 3.9.
  - Country examples:
    - Argentina: 2024 = -1.3; 2025 = 4.4; 2026 = 3.5; 2027 = 4.0; 2030 = 3.2; 2031 = 3.0.
    - China: 2024 = 5.0; 2025 = 5.0; 2026 = 4.6; 2027 = 4.1; 2030 = 3.3; 2031 = 3.3.
    - India (FY basis): 2024 = 7.1; 2025 = 7.7; 2026 = 6.4; 2027 = 6.7; 2030 = 6.5; 2031 = 6.5.
    - United States: 2024 = 2.8; 2025 = 2.1; 2026 = 2.3; 2027 = 2.2; 2030 = 1.8; 2031 = 1.8.
    - African Union: 2024 = 11.5; 2025 = 13.1; 2026 = 5.3; 2027 = 5.8; 2030 = 5.3; 2031 = 5.2.

- Deviations from baseline (selected)
  - World deviations: 2026 = -0.1; 2027 = 0.2; 2030 = -0.1.
  - G20 deviations: 2026 = 0.1; 2027 = 0.0; 2030 = 0.0.
  - Advanced G20 deviations: 2026 = 0.0; 2027 = 0.0; 2030 = 0.0.
  - Emerging G20 deviations: 2026 = 0.1; 2027 = 0.1; 2030 = 0.0.
  - Selected country deviations: Argentina 2026 = -0.5; Australia 2026 = -0.2; Brazil 2026 = 0.5; Canada 2026 = -0.4; China 2026 = 0.4; India 2026 = 0.2; Korea 2026 = 0.8; Saudi Arabia 2026 = -2.3; Türkiye 2026 = -0.8; United States 2026 = 0.2; African Union 2026 = -1.5.

### Policy recommendations — high-level priorities and implementation challenges
- Macroeconomic and fiscal priorities
  - Implement recommended macroeconomic policy mix (including fiscal consolidation where appropriate) while preserving growth-enhancing public investment.
  - "Additional fiscal consolidation is recommended in most G20 economies" to rebuild fiscal buffers and safeguard fiscal sustainability.
  - Monetary and macrofinancial policy settings broadly in line with recommendations, but higher policy rate paths expected and recommended in many economies to contain inflationary pressures from higher energy prices.

- Structural reform priorities (country-group summaries)
  - G20 advanced economies:
    - Prioritize fiscal reforms alongside labor market institutions, education and skills policies, and business regulations.
    - Fiscal reforms assessed as high or medium priority in all but two G20 advanced economies (Australia and Canada).
    - Specific recommendations: tax policy and revenue administration reforms (Germany, Italy, Japan, Korea, United States); reduce distortions from taxation of labor (Germany, Italy, United States); pension reforms (France, Germany, Korea, United States).
    - Education and skills: worker training/retraining programs recommended in Canada, Germany, Italy, Korea, United Kingdom.
    - Labor market integration of immigrants: recommended in Canada, Germany, Italy.
    - Gender gap reduction policies: recommended in Germany, Italy, Korea.
    - Business regulation reforms: reduce bureaucracy and administrative requirements (Australia, Germany, Italy); ease product market regulations (Australia, Italy, Korea).
  - G20 emerging market economies:
    - Fiscal policy reforms high priority in all G20 emerging markets, often alongside governance, business regulation, labor market institutions, and education and skills policies.
    - Tax policy and revenue/customs administration reforms recommended to mobilize domestic revenues, rebuild fiscal buffers, and stabilize public debt.
    - Developing social insurance schemes prioritized in China and India.
    - Governance reforms high priority in Argentina, Mexico, South Africa.
    - Business regulation reforms: reduce bureaucracy costs and ease administrative requirements (Argentina, Brazil, Indonesia, South Africa, Türkiye; plus India for administrative easing); ease product market regulations (Argentina, China, India, Indonesia, South Africa).
    - Labor market reforms to reduce informality: Argentina, Brazil, India, Indonesia, Türkiye; easing hiring/firing recommended in these and in South Africa.
    - Worker training/retraining: priority in all G20 emerging market economies except Brazil.
  - African Union:
    - Largest economies would benefit from fiscal policy, monetary and financial framework, and governance reforms.

- Implementation challenges and sequencing
  - Political economy constraints and sequencing issues slow reform implementation.
  - Information strategies and strong institutional frameworks can help raise public support and improve reform outcomes.
  - Effective sequencing: first-generation reforms to governance, business regulation, and external sector can amplify returns to second-generation labor and credit market reforms.

- International cooperation priorities
  - Work to improve predictability of international economic rules and modernize trade rules to reflect services trade and supply chain resilience.
  - Regional and plurilateral agreements encouraged if they remain open and avoid distortionary provisions.
  - Avoid export restrictions.
  - Continue strengthening sovereign debt resolution mechanisms (G20 Common Framework; Global Sovereign Debt Roundtable).

### Methods and measurement highlights (selected)
- Deregulation measure
  - Based on classification of New York Times articles between 1960 and 2025 using an LLM; scores assigned between 0 and 1 and aggregated to quarterly measures.

- Bayesian structural VAR settings (U.S. "small VAR")
  - Lag-decay hyperparameter α = 2.
  - Overall prior tightness λ hyperprior: Gamma with mode 0.2 and standard deviation 0.4.
  - Number of lags: six.
  - Posterior simulation: 10,000 draws after 5,000 burn-in draws.
  - Identification via Cholesky decomposition with country-specific ordering rules.

- Local projections using the IMF Structural Reform Database (SRD)
  - SRD indices standardized to 0–100; coverage 90 countries over 1973–2019 (domestic finance index coverage ends in 2014).
  - Local projection controls include foreign demand lags, changes in general government revenues/expenditures (share of GDP), domestic investment share, and real GDP per capita gap vs the United States.
  - Heterogeneity analysis: HighLevel dummy = top 30 percent of regulation levels.

- Telecommunications and ICT empirical design
  - Telecommunications regulation index (OECD ETCR): range 0 to 6; decline = more market-friendly.
  - ICT investment dependent variable: share of ICT investment in total gross fixed capital formation (Eurostat, 1995–2022).
  - Internet penetration analyses use World Bank WDI and Gallup World Poll microdata; sample for household regressions covers 2009–2016.
  - Table IV.2 selected coefficients (Internet penetration effects on home internet access, per 10 percentage-point unit):
    - Internet penetration — World: 0.00528*** (0.000827); AEs: 0.00441* (0.00239); EMDEs: 0.00540*** (0.000951); OECD: 0.00632*** (0.00149).
    - Low-income household — World: -0.0667*** (0.0111); AEs: -0.200*** (0.0459); EMDEs: -0.0324*** (0.0106); OECD: -0.253*** (0.0409).
    - Internet penetration × Low-income — World: -0.000485** (0.000200); AEs: 0.00166*** (0.000569); EMDEs: -0.00199*** (0.000425); OECD: 0.00236*** (0.000511).
    - Observations — World: 915357; AEs: 226324; EMDEs: 689033; OECD: 239341.
    - R-squared — World: 0.473; AEs: 0.277; EMDEs: 0.374; OECD: 0.316.

### Key takeaways
- Implementing the recommended macroeconomic policy mix together with prioritized structural reforms tailored to identified impediments would:
  - Raise medium-term growth prospects;
  - Contain or reduce public debt burdens and rebuild fiscal space in most G20 economies;
  - Reduce external imbalances through coordinated fiscal adjustments and structural enhancements.
- Reform sequencing, political economy management, and international cooperation are critical to realize projected gains, manage cross-border spillovers, and strengthen sovereign debt resolution frameworks.

*Source: G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth — Chapter summaries, simulation results, survey Annex II, and methodological annexes (IMF, assessments as presented in the provided content).*

### EXECUTIVE SUMMARY _____________________________________________________________________________ 4

### g20-report-on-strong-sustainable-balanced-and-inclusive-growth - EXECUTIVE SUMMARY

### ASSESSING PROGRESS TOWARD STRONG, SUSTAINABLE, BALANCED, AND INCLUSIVE GROWTH

- Overall assessment
  - G20 growth has been resilient over the past year despite a series of shocks.
  - Medium-term growth prospects remain constrained by structural factors and policies.
  - Expected medium-term G20 growth is "at just 3 percent", described as close to their weakest since the SSBIG Framework launch in 2009.

- Near-term developments and drivers
  - Some progress toward strong and sustainable growth over the past year; more limited progress toward balanced and inclusive growth.
  - Majority of G20 advanced economies are assessed to have made "moderate or substantial progress" towards strong growth relative to the 2025 edition.
  - Resilience factors include "unexpected easing of global financial conditions, including the depreciation of the US dollar."
  - Two opposing near-term forces:
    - A negative supply shock from the war in the Middle East, raising energy prices and contributing to upward revisions in inflation projections and expectations for tighter monetary policy across the G20.
    - Positive momentum from advances in and deployment of artificial intelligence (AI), offsetting drag in economies that are net exporters of AI-related inputs (examples cited: Korea and the Netherlands).

- Medium-term outlook and convergence
  - Medium-term per capita real GDP growth remains weak compared to 2009; slowdown pervasive across G20 advanced and emerging market economies, with few exceptions (notably, the United States and Türkiye).
  - Convergence in per capita income relative to the United States has, in most cases, stagnated or widened. Meaningful reductions since 2009 only in China, India, Indonesia, Korea, and Türkiye.
  - Based on recent rates of improvement, "it could take more than 50 years for the average G20 emerging market economy" to converge to the United States (calculation assumption provided in source).

- Fiscal and external considerations
  - Elevated public debt levels and rising interest rates strain public finances; absent fiscal consolidation, could result in destabilizing debt dynamics.
  - Many G20 economies resorted to fiscal policy tools in response to the war in the Middle East and are expected to maintain expansionary fiscal policy stances over the medium term.
  - Global current account balances widened for the second successive year in 2025; increase driven primarily by China though the United States deficit remains the largest and has widened since 2009.

### IMPEDIMENTS TO GROWTH

- General framework and tradeoffs
  - Policies and regulations can address market failures and improve welfare but can also generate tradeoffs that weigh on growth when excessive or poorly designed.

- Key impediments identified by the IMF SSBIG survey of country teams
  - Across G20 economies, common impediments include:
    - Excessive business regulations.
    - Underdeveloped capital markets.
  - G20 advanced economies:
    - Burdensome labor and product market regulations.
    - Inadequate policies to address demographic challenges in many economies.
    - Investment hindered by housing and zoning restrictions and, in some cases, underdeveloped capital markets.
    - Within the European Union: fragmentation from variations in business regulations, professional licensing and permits, and financial market structures impeding resource allocation across member states.
  - G20 emerging market economies:
    - Excessive labor and product market regulations.
    - Barriers to labor mobility and firm expansion in some economies.
    - Investment held back by underdeveloped capital markets, weaknesses in public investment management, and deficiencies in governance and institutional quality.
  - Empirical evidence:
    - Market-liberalizing and deregulatory reforms can boost investment and growth where existing regulatory burdens are relatively high.

### GETTING REGULATION RIGHT (HIGHLIGHTS)

- Nature of regulatory reform and constraints
  - The report documents a path of regulatory reform and institutional and political constraints affecting implementation.
  - Measuring economic impacts of deregulation and market liberalization indicates potential positive effects on investment and GDP per capita where initial regulatory burdens are high.

- Empirical takeaways (as summarized)
  - Evidence suggests deregulation and market-liberalizing reforms can deliver measurable gains in investment and growth in relevant contexts.

### POLICY CHALLENGES AND OPPORTUNITIES

- Fiscal and macro policy priorities
  - Fiscal consolidation and structural reforms remain a priority to strengthen growth prospects and support domestic and external rebalancing.
  - Macrofinancial and monetary policy settings are broadly in line with recommendations, but "additional fiscal consolidation is recommended in most G20 economies" to rebuild fiscal buffers and safeguard fiscal sustainability.
  - Reforms to fiscal frameworks, business regulations, and labor market institutions are priorities across much of the G20.
  - Improvements in governance are particularly important for many G20 emerging market economies and many of the largest members of the African Union.

- Model simulations and projected impacts
  - Model simulations suggest implementing recommended policies and reforms could:
    - Improve growth prospects by addressing longstanding growth impediments.
    - Help reduce rising domestic and external imbalances.
  - International coordination noted as important for reducing uncertainty and managing cross-border spillovers.

- Reform focus and expected benefits
  - Prioritized reform areas (high-level):
    - Fiscal consolidation and stronger fiscal frameworks.
    - Deregulation and market-liberalizing measures where burdens are high.
    - Labor market and business regulation reforms to reduce burdens while managing tradeoffs.
    - Strengthening governance and public investment management in economies where these are weak.
  - Expected outcomes:
    - Stronger, more sustainable, and more balanced growth.
    - Improved investment and productivity outcomes in economies undertaking market-friendly reforms.

*Prepared under the guidance of Aqib Aslam; prepared based on information available as of July 10, 2026.*

### 6.       Markets do not always deliver outcomes that maximize social welfare, creating a role

### 6. Markets do not always deliver outcomes that maximize social welfare, creating a role for intervention through regulation

### Market failures, justification for intervention, and tradeoffs
- When market failures impede growth or otherwise reduce welfare, well-designed government policies and regulations can improve outcomes, provided that the expected social benefits outweigh the costs (Figure 7).
- Examples of justifications for intervention:
  - Excessive market power → antitrust policies to deter reduced competition, reduced consumer choice, and higher prices.
  - Negative externalities (e.g., environmental pollution) → regulations such as phasing out leaded gasoline.
  - Insufficient provision of public goods (e.g., technological innovation) → subsidies, grants for research and development, and patent protections.
  - Information asymmetries (quality and safety concerns) → licensing or disclosure requirements, including in healthcare.
- Tradeoffs and risks:
  - Regulations can correct market failures but also generate tradeoffs if not well calibrated (Figure 8).
  - Examples where regulation can impede efficient allocation of resources:
    - Employment protection regulations may insure workers but impede efficient labor allocation (Restuccia and Rogerson, 2017).
    - Land-use and zoning regulations can encourage urban development but reduce construction sector productivity (evidence cited).
    - Restrictive product and service market regulations can depress investment and medium-term growth (Koedijk and Kremers, 1996; Alesina and others, 2005).
    - Excessive competition policy can curtail returns to innovation and reduce incentives to innovate (Aghion and others, 2005).
  - Costs of regulation can be unequally distributed across firms (for example, by firm size), distorting resource allocation (Guner and others, 2008; Restuccia and Rogerson, 2008; Hsieh and Klenow, 2009 and 2014).
  - No universally optimal level of regulation; policies should be designed to reach the regulation possibilities frontier rather than lie inside it (Figure 8).

### Governance, public financial management, and impacts on investment
- Weak governance frameworks hinder private sector investment and development through multiple channels:
  - Weak property rights and contract enforcement prevent investors from capturing returns on investment → discourages physical and human capital accumulation.
  - Poor governance and lack of transparency increase opportunities for corruption and expropriation → regressive tax on business activity, raising transaction costs and distorting resource allocation.
  - Weak rule of law delays dispute resolution and weakens contract enforcement → raises cost of doing business and discourages investment, including foreign investment.
  - Political instability increases risk premia demanded by investors given uncertain reform environment.
  - Result: lower expected returns, higher uncertainty, diversion to rent-seeking, suppression of capital accumulation, productivity growth, and long-run private sector development; firms may remain informal, limiting access to credit and scale.
- Public investment management and governance:
  - IMF estimates suggest that up to 27 percent of the value of public investment is lost in emerging markets and 13 percent in advanced economies in 2019.
  - Weak governance frameworks can raise costs and uncertainty associated with enforcing property rights and hinder development of capital markets, leading to sub-optimal investment decisions (Mauro, 1995; EBRD Transition Report, 2019; Rajan and Zingales, 1998; Levine, 2005).
  - Underinvestment in public goods (infrastructure, education, health) can result if resources are diverted or institutions lack capacity.

### Fragmentation, innovation, and compliance costs
- Market fragmentation and intrajurisdictional barriers weaken dynamic efficiency and hinder innovation:
  - Fragmented financial markets (different legal and regulatory frameworks such as insolvency regimes) increase cost and reduce availability of finance → inhibits growth of young, innovative firms (Draghi, 2024; Arnold and others, 2024).
  - Removing cross-border financial frictions in the EU could raise long-run GDP by about 3 percent and amplify benefits from broader structural reforms (Brandão-Marques and others, 2026).
  - Product market fragmentation limits market size firms can sell into, reducing innovation incentives (Acemoglu and Linn, 2004).
  - Eliminating non-geographic barriers to internal trade in Canada could increase real GDP by nearly 7 percent in the long run (Diez and Yang, 2026; IMF, Staff Report for the 2025 Article IV Consultation with Canada, 2026).
- Regulatory compliance and administrative costs:
  - Estimates suggest that between 3.2 and 4 percent of labor in the United States, Australia, and Europe is allocated to compliance tasks, constituting a direct drag on output of around 1-2 percent of GDP (Trebbi and others, 2026; Andrews and others, 2026).

### Survey-based assessment of policy-related impediments to growth in G20 economies
- IMF SSBIG survey of country desks asked teams to quantify growth impediments across three categories: business regulation, intrajurisdictional barriers, and investment barriers, based on expected drag on medium-term growth.
- Definitions used in survey for medium-term growth impacts:
  - Minor impediment: negative impact between -0.1 and -0.5 percentage points.
  - Moderate impediment: impact between -0.5 and -1.0 percentage points.
  - Major impediment: impact larger than -1.0 percentage points.
- Key survey findings:
  - About half of G20 advanced economies and nearly three-quarters of G20 emerging market economies face growth impediments from overly restrictive labor market, product market, or consumer regulations (Figure 9).
    - Advanced economy examples: excessive consumer and product market regulations in some (e.g., Australia); excessive labor market policies and regulations in Italy and Korea.
    - Emerging market examples: nearly half face at least moderate impediments (e.g., India); China and South Africa assessed to face major impediments from excessive consumer and product market regulations.
    - Several economies also face impediments from insufficient regulations (e.g., China and Türkiye), highlighting the need to calibrate regulatory frameworks along multiple dimensions.
  - More than half of G20 advanced economies were assessed as having inadequate policies to address demographic challenges; G20 advanced economies have seen old-age dependency ratios rise over recent decades to over 30 percent.
    - Inadequate responses to demographic shifts were identified as significant impediments in several EU economies and Korea; China also identified inadequate responses.
  - Intrajurisdictional variation in business regulations identified as growth impediment in several G20 economies (Figure 10):
    - European Union faces moderate impediments in all sub-areas, including barriers that hinder expansion of high-productivity firms, labor mobility, and financial integration; voluntary 28th regime proposed to reduce these barriers.
    - More than half of G20 emerging market economies subject to intrajurisdictional barriers; South Africa identified as facing a major impediment; China assessed as facing a moderate impediment overall, with a major impediment from barriers to labor mobility due to the Hukou system.
  - Inadequate regulatory and institutional frameworks are significant impediments to private and public investment in G20 emerging market economies (Figure 11):
    - Most significant investment barriers: underdeveloped capital markets, poor public investment management, and poor governance and institutions.
    - Underdeveloped capital markets assessed as moderate impediment in Argentina, China, Saudi Arabia, and Türkiye.
    - Weak public investment management assessed as a major impediment in South Africa.
    - Weak governance and institutions identified as a growth impediment in all G20 emerging market economies except Saudi Arabia; moderate to major combined impediments present in Argentina, Brazil, China, Mexico, and South Africa.
  - Housing and zoning constraints and underdeveloped capital markets notable impediments in G20 advanced economies:
    - Housing and zoning issues assessed as a major impediment in the United Kingdom.
    - Moderate impediments found in Australia, Canada, and Korea.
    - Underdeveloped capital markets an impediment in advanced economies such as Italy.

### Getting regulation right: reform trajectory and constraints
- Reform implementation has declined in recent decades due to political economy impediments and sequencing challenges.
- Empirical evidence:
  - Deregulation and liberalization events can support higher output per capita, particularly when adjusting from high initial levels of regulation—indicating the importance of calibrating regulation to address market failures while supporting growth.
  - Market-friendly deregulation in telecommunications can boost preparedness for and adoption of new technologies such as AI.
- Evidence on construction sector productivity and land-use regulation:
  - Rising land-use regulation contributed significantly to decline in construction sector labor productivity in the United States; labor productivity fell by more than 30 percent between 1970 and 2020 (Goolsbee and Syverson, 2023).
  - Land-use regulation contributed one-third of the decline in trend GDP growth since World War II (Foerster and others, 2022).
  - Several other G20 advanced economies have seen similar declines in construction sector productivity (Goldman Sachs, 2026).

*Source: G20 REPORT ON STRONG, SUSTAINABLE, BALANCE, AND INCLUSIVE GROWTH — Chapter 6 (IMF).*

### 18.      Since the market-liberalizing reforms of the 1980s and 90s, the pace of liberalizing

### G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth — Market Liberalization and Deregulation (excerpt)

### Reform trends since the 1980s and 1990s
- Since the market-liberalizing reforms of the 1980s and 90s, the pace of liberalizing reforms has moderated.
- Product market and domestic financial liberalization have been the most sustained and extensive types of reform until recently, while changes in labor market regulation have been more muted.
- Product market and financial sector regulatory reforms reflect privatization and network-industry reforms in G20 advanced economies, followed by later reductions in entry barriers and licensing requirements in G20 emerging market economies, alongside financial reforms such as easing credit controls, interest-rate deregulation, bank entry reforms, and securities market development.
- External finance liberalization occurred earlier:
  - Many G20 advanced economies removed capital controls in the 1970s and 1980s.
  - Emerging market economies opened more gradually during the 1990s and 2000s, after which capital-account regimes stabilized at relatively open levels.
- G20 advanced economies and EU members liberalized earlier and have since seen reform momentum slow, in part reflecting past progress; G20 emerging market and AU economies liberalized later and more gradually.
- Labor market regulation has evolved more gradually and with weaker synchronization across country groups, consistent with employment protection legislation (EPL) reforms being more incremental, country‑specific, and shaped more by legal traditions, institutions, and labor-market models than by income levels.

### News-based deregulation measures and historical patterns
- Broad news-based measures of deregulation capture how waves of regulatory reform have coincided across regions, suggesting deregulation activity peaked in the 1980s and 1990s in most regions.
- Regional and country-specific patterns captured by news-based indices:
  - Western Europe: a peak in the 1960s following the creation of the European Economic Community and efforts to remove barriers to trade, capital, and labor flows.
  - United States: recent peaks coincide with shifts in presidential administrations.
  - China: a distinct pattern with a peak around the time of WTO accession and a gradually increasing trend.
- Note: See IMF’s Structural Reform Database documentation and Cascaldi-Garcia & Iacoviello (2026) for methodological details and validation of the index.

### Political economy challenges and reform sequencing
- Addressing political economy challenges is critical to reinvigorate reform momentum; challenges include securing broad social support and frictions between different levels of government or across members of a union.
- IMF analysis finds information strategies to raise awareness and address misinformation and policy misperceptions can strengthen public support—especially if complemented by strong institutional frameworks that foster trust and dialogue early in reform design (see IMF, World Economic Outlook, October 2024, Chapter 3).
- Political economy factors were identified as the main challenge to reform implementation in most G20 economies:
  - More severe in G20 emerging market economies, with major obstacles assessed in Argentina, China, India, and South Africa, and moderate obstacles in Brazil and Türkiye.
  - G20 advanced economies also face political economy constraints, with challenges assessed in Canada, France, Germany, Italy, and the United Kingdom.
  - The European Union was assessed to face significant political economy challenges, reflecting the need for coordination across member states.
- Effective sequencing of reforms can help overcome growth impediments:
  - Well-sequenced structural reforms can amplify growth benefits in emerging market economies, with first-generation reforms to governance, business regulation, and the external sector boosting returns from second-generation labor and credit market reforms (Budina and others, 2023).
  - Several G20 economies—particularly emerging market economies such as Argentina, and some advanced economies including the United Kingdom—face challenges in determining appropriate reform sequencing.

### Measured economic impacts of deregulation and liberalization
- United States evidence:
  - A one-standard deviation increase in a news-based measure of deregulation is associated with an increase in investment per capita of around 75 basis points after one year and by more than 1 percent over the medium term.
  - Output per capita increases by about 25 basis points after one year and 50 basis points over the medium term in the United States.
- Comparable evidence for other G20 advanced economies (Germany, Japan, United Kingdom) indicates qualitatively similar but generally smaller and less precisely estimated effects.
- Types of liberalization and timing of gains:
  - Domestic financial liberalization appears to precede increases in output per capita; gains from domestic and external finance reforms build over time.
  - Labor market reforms show a more front-loaded association with output, peaking after one year before gradually fading.
  - Product market reforms are linked to generally positive but statistically insignificant changes in per capita incomes.
  - Total factor productivity (TFP) tends to increase on impact following all types of liberalization events except for labor market reforms—suggesting gains reflect higher capacity utilization rather than innovation-driven productivity growth.
- State dependence:
  - Regulatory changes are generally associated with larger output responses in less liberalized economies.
  - Labor market deregulation is associated with significant gains in GDP per capita when initial employment protection is high.
  - External financial liberalization is significant over the medium term at the 10 percent level when financial openness is lower.
  - Changes in product and domestic financial sector regulation are associated with similar output responses regardless of the initial level of regulation.

### Box: Market-friendly telecommunications regulations and AI adoption foundations
- Since the mid-1990s, OECD economies shifted toward more market-friendly telecom regulatory environments—reducing barriers to entry, lowering state participation, and strengthening competition.
- This regulatory shift has been associated with stronger ICT-related capital investment and proliferation of telecommunications networks (broadband systems, fiber-optic cables, mobile towers, cloud data centers, and related digital communications infrastructure) that underpin AI deployment.
- Cross-country patterns:
  - Countries that adopted more market-friendly telecom frameworks earlier recorded stronger or earlier increases in ICT-sector investment shares and earlier and stronger increases in internet penetration.
  - Household-level evidence: a 10 percentage-point increase in national internet penetration is associated with about a 5 percentage-point increase in the probability that a household reports home internet access.
    - In emerging market and developing economies, lower-income households remain persistently less connected even as national internet penetration increases.
    - In more advanced economies, higher national internet penetration is associated with a stronger increase in home internet access among lower-income households relative to higher-income households—consistent with stronger convergence in access.
- Implication: In less-developed economies, complementary policies may be required to ensure digital infrastructure translates into inclusive gains from AI adoption.
- Prior shifts to market-friendly telecom regulation could support faster AI adoption:
  - Countries with broader internet penetration score higher on the IMF’s AI Preparedness Index (AIPI).
  - Advanced economies generally have higher levels of both internet penetration and AI preparedness; many emerging and developing economies lag on both dimensions.
  - Regulatory choices in foundational digital sectors can shape the infrastructure base on which AI adoption depends, with implications for the speed of realizing productivity and growth benefits from AI adoption.

### Policy challenges, priorities, and potential outcomes
- Projected monetary and macrofinancial policies remain broadly aligned with recommendations despite commodity price shocks from the war in the Middle East; recommendations call for additional fiscal consolidation in most G20 economies.
- Structural reform priorities:
  - G20 advanced economies:
    - Prioritize fiscal reforms alongside reforms to labor market institutions, education and skills policies, and business regulations.
    - Fiscal reforms assessed as high or medium priority in all but two G20 advanced economies (Australia and Canada).
    - Specific recommendations include reforms to tax policy and revenue administration (Germany, Italy, Japan, Korea, and the United States); reforms to reduce distortions from taxation of labor (Germany, Italy, and the United States); and pension reforms (France, Germany, Korea, and the United States).
    - Reforms to education and skills policies (worker training and retraining programs) recommended in Canada, Germany, Italy, Korea, and the United Kingdom.
    - Policies to facilitate labor market integration of immigrants recommended in Canada, Germany, and Italy.
    - Labor market reforms to reduce gender gaps recommended in Germany, Italy, and Korea.
    - Business regulation reforms—reducing bureaucracy costs and administrative requirements (Australia, Germany, and Italy) and easing product market regulations (Australia, Italy, and Korea).
  - G20 emerging market economies:
    - Fiscal policy reforms are a high priority in all G20 emerging market economies, often alongside governance, business regulation, labor market institutions, and education and skills policies.
    - Recommended fiscal reforms center on tax policy and revenue and customs administration to mobilize domestic revenues, rebuild fiscal buffers, and stabilize public debt.
    - Developing social insurance schemes is a priority in China and India.
    - Governance reforms are a high priority in Argentina, Mexico, and South Africa.
    - Business regulation reforms focus on reducing bureaucracy costs (Argentina, Brazil, Indonesia, South Africa, and Türkiye) and easing administrative requirements (the same plus India), and easing product market regulations (Argentina, China, India, Indonesia, and South Africa).
    - Labor market reforms to reduce informality are prominent in Argentina, Brazil, India, Indonesia, and Türkiye; easing hiring and firing regulations is recommended in these economies and in South Africa.
    - Worker training and retraining policies are a key priority in all G20 emerging market economies except Brazil.
  - African Union:
    - Largest economies would benefit from reforms to fiscal policies, monetary and financial frameworks and institutions, and governance reforms.
- Simulations suggest that implementing recommended policies and priority structural reforms would deliver:
  - Rising medium-term growth prospects;
  - Contained debt burdens; and
  - Reduced external imbalances.
- Macro policy calibration:
  - A sharper than currently projected fiscal consolidation is warranted in most G20 economies.
  - Monetary and macrofinancial policy projections have shifted, with higher policy rate paths expected (and recommended) in many economies to contain inflationary pressures from higher energy prices.
  - Agile and well-tailored policies are required given differences in exposure to the war in the Middle East, integration into AI-related supply chains, medium-term growth prospects, and fiscal space and spending needs.

*Italic: Excerpt from G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth (IMF staff assessments and analyses as presented in the provided content).*

### 27.      Implementing priority structural reforms that correspond to identified growth

### 27.      Implementing priority structural reforms that correspond to identified growth impediments—alongside the recommended macroeconomic policy mix—would significantly improve medium-term growth prospects.

### Overview and context
- Implementing priority structural reforms that correspond to identified growth impediments—together with the recommended macroeconomic policy mix—would significantly improve medium-term growth prospects.
- Quantitative analysis is undertaken using the IMF economic model for the G20. Due to model and data limitations, the model simulation, and the results appearing in Figures 20 and 21, do not consider policy recommendations for, or spillovers to, the African Union.
- Long term refers to 2036.

### Macroeconomic policies: short-, medium-, and long-term effects
- Adopting recommended macroeconomic policies would weigh on output in the short and medium term, largely reflecting demand effects of running tighter fiscal policy than currently projected.
  - These effects are more pronounced for advanced economies as a whole because of the sizeable fiscal adjustment recommended in the United States.
  - Simulated fiscal consolidations preserve growth-enhancing public investment.
- Over the longer term, growth rises as lower public debt reduces global interest rates, stimulates investment and raises output.
- Notes on simulation scope:
  - While the simulations do not distinguish between different types of public investment, this could take many forms, such as investment in physical capital and infrastructure or investment in human capital.
  - The IMF Fiscal Monitor, October 2025 discusses how reallocating spending toward education and health can generate meaningful gains in productivity and output.

### Structural reforms: magnitude and cross-country patterns
- Recommended structural reforms increase output in both advanced and emerging market economies, with largest gains over the medium and long term.
- Country-specific high-impact reform areas identified:
  - Advanced economies:
    - Reforms to support innovation and research and development provide significant boosts in Canada and Italy.
    - Reforms to business regulations and labor markets boost growth in Australia and Germany.
  - Emerging market economies:
    - Larger gains where there is greater scope for reform, particularly through improvements in governance and business regulation (e.g., Mexico and South Africa).
    - Fiscal policy and external sector reforms are particularly important for Argentina and Brazil.
- Correspondence between impediments and reform priority:
  - Governance and fiscal policy reforms are higher priority where poor governance/institutions or public investment management were identified as significant growth impediments.
  - Business regulation reforms are higher priority where excessive consumer and product market regulations or intrajurisdictional regulatory variation were cited.
  - Monetary and financial sector reforms are higher priority where underdeveloped capital markets constrain investment and growth.

### Fiscal space, public debt, and external imbalances
- Adopting recommended policies in all G20 economies simultaneously would help rebuild fiscal space where most needed, while also reducing external imbalances.
- In most G20 economies, recommendations for tighter fiscal policy—with notable exceptions such as China—would reduce public debt, including in economies identified as having limited or no fiscal space.
- Structural reforms reinforce debt gains by raising output and lowering debt-to-GDP ratios even in economies where projected fiscal policy is broadly aligned with recommendations (e.g., Argentina and Australia).
- Together, the recommended macro and structural policies would:
  - Strengthen fiscal sustainability and improve resilience to future shocks.
  - Reduce external imbalances: fiscal consolidation in economies with excess current account deficits would help reduce domestic deficits (e.g., Italy and the United States) and, through international financial spillovers, reduce current account surpluses in economies with excess surpluses (e.g., China and Germany).
  - India is an exception among economies with excess surpluses, with its current account balance projected to increase owing to domestic fiscal contraction and spillovers from structural reforms in other economies.
- Country categorization for fiscal space (as used in simulations):
  - "Substantial" fiscal space include AUS, DEU, KOR, RUS, SAU.
  - "Some" include BRA, CAN, CHN, FRA, GBR, IDN, IND, JPN, MEX, TUR, USA, ZAF.
  - “At risk” includes ITA.
  - "None" includes ARG.
  - RUS: policy recommendations are not available.

### International cooperation and sovereign debt frameworks
- International cooperation can support growth by reducing uncertainty and making international economic rules more predictable—creating an environment more conducive to investment and long-term economic growth.
- Policy priorities for cooperation:
  - Work constructively to address concerns over the fairness of the global trading system and modernize trade rules to reflect structural shifts (including services trade and supply chain resilience).
  - Regional and plurilateral agreements can support these objectives, provided they remain open and avoid provisions that distort trade or disadvantage third parties.
  - Avoid export restrictions as they can exacerbate global supply shortages, increase price volatility, and distort domestic economic activity.
- Simultaneous policy adjustments by surplus and deficit economies can narrow global imbalances and strengthen global growth; cooperation is essential to manage cross-border spillovers, including pressures in commodity markets.
- Continued progress in strengthening sovereign debt resolution mechanisms remains a priority:
  - International cooperation can help address temporary liquidity strains.
  - Further progress under the G20 Common Framework and the Global Sovereign Debt Roundtable is needed to improve the timeliness, predictability, and orderly resolution of sovereign debt distress.

### Key quantitative projections and indicators (selected figures from tables and text)
- Model and timeframe references:
  - Long term in model simulations: 2036.
- Selected Real GDP Growth (percent) — historical and projections (World, G20 aggregates, selected economies):
  - World: 2024 = 3.5; 2025 = 3.5; 2026 = 3.0; 2027 = 3.4; 2030 = 3.0; 2031 = 3.0.
  - G20 (aggregate): 2024 = 3.5; 2025 = 3.4; 2026 = 3.1; 2027 = 3.2; 2030 = 2.9; 2031 = 3.0.
  - G20 Advanced (aggregate): 2024 = 1.7; 2025 = 1.5; 2026 = 1.6; 2027 = 1.7; 2030 = 1.4; 2031 = 1.4.
  - G20 Emerging (aggregate): 2024 = 4.9; 2025 = 4.7; 2026 = 4.2; 2027 = 4.3; 2030 = 3.9; 2031 = 3.9.
  - Argentina: 2024 = -1.3; 2025 = 4.4; 2026 = 3.5; 2027 = 4.0; 2030 = 3.2; 2031 = 3.0.
  - Australia: 2024 = 1.0; 2025 = 2.0; 2026 = 1.9; 2027 = 1.7; 2030 = 2.2; 2031 = 2.2.
  - Brazil: 2024 = 3.4; 2025 = 2.3; 2026 = 2.4; 2027 = 2.2; 2030 = 2.5; 2031 = 2.5.
  - Canada: 2024 = 2.0; 2025 = 1.9; 2026 = 1.1; 2027 = 1.7; 2030 = 1.7; 2031 = 1.8.
  - China: 2024 = 5.0; 2025 = 5.0; 2026 = 4.6; 2027 = 4.1; 2030 = 3.3; 2031 = 3.3.
  - France: 2024 = 1.4; 2025 = 0.9; 2026 = 0.6; 2027 = 0.9; 2030 = 1.1; 2031 = 1.1.
  - Germany: 2024 = -0.5; 2025 = 0.2; 2026 = 0.7; 2027 = 1.0; 2030 = 0.7; 2031 = 0.6.
  - India (FY basis): 2024 = 7.1; 2025 = 7.7; 2026 = 6.4; 2027 = 6.7; 2030 = 6.5; 2031 = 6.5.
  - Indonesia: 2024 = 5.0; 2025 = 5.1; 2026 = 5.0; 2027 = 5.1; 2030 = 5.2; 2031 = 5.2.
  - Italy: 2024 = 0.8; 2025 = 0.5; 2026 = 0.5; 2027 = 0.5; 2030 = 0.7; 2031 = 0.7.
  - Japan: 2024 = -0.2; 2025 = 1.1; 2026 = 0.6; 2027 = 0.7; 2030 = 0.6; 2031 = 0.6.
  - Korea: 2024 = 2.2; 2025 = 1.1; 2026 = 2.6; 2027 = 2.5; 2030 = 1.8; 2031 = 1.8.
  - Mexico: 2024 = 1.5; 2025 = 0.5; 2026 = 1.2; 2027 = 1.9; 2030 = 2.1; 2031 = 2.1.
  - Russia: 2024 = 4.9; 2025 = 1.0; 2026 = 1.1; 2027 = 1.1; 2030 = 1.0; 2031 = 1.0.
  - Saudi Arabia: 2024 = 2.6; 2025 = 4.6; 2026 = 1.7; 2027 = 5.5; 2030 = 3.5; 2031 = 3.6.
  - South Africa: 2024 = 0.5; 2025 = 1.1; 2026 = 1.1; 2027 = 1.3; 2030 = 1.8; 2031 = 1.8.
  - Türkiye: 2024 = 3.3; 2025 = 3.6; 2026 = 2.9; 2027 = 3.6; 2030 = 4.0; 2031 = 4.0.
  - United Kingdom: 2024 = 1.0; 2025 = 1.4; 2026 = 1.0; 2027 = 1.3; 2030 = 1.4; 2031 = 1.4.
  - United States: 2024 = 2.8; 2025 = 2.1; 2026 = 2.3; 2027 = 2.2; 2030 = 1.8; 2031 = 1.8.
  - European Union: 2024 = 1.2; 2025 = 1.6; 2026 = 1.2; 2027 = 1.4; 2030 = 1.4; 2031 = 1.4.
  - African Union: 2024 = 11.5; 2025 = 13.1; 2026 = 5.3; 2027 = 5.8; 2030 = 5.3; 2031 = 5.2.
- Deviations (columns in table indicate deviations/projections): selected examples of deviations from baseline shown in table (percent or percentage point differences as labeled in source):
  - World deviations: 2026 = -0.1; 2027 = 0.2; 2030 = -0.1.
  - G20 deviations: 2026 = 0.1; 2027 = 0.0; 2030 = 0.0.
  - Advanced G20 deviations: 2026 = 0.0; 2027 = 0.0; 2030 = 0.0.
  - Emerging G20 deviations: 2026 = 0.1; 2027 = 0.1; 2030 = 0.0.
  - Country-specific deviation examples (from table): Argentina 2026 = -0.5; Australia 2026 = -0.2; Brazil 2026 = 0.5; Canada 2026 = -0.4; China 2026 = 0.4; India 2026 = 0.2; Korea 2026 = 0.8; Saudi Arabia 2026 = -2.3; Türkiye 2026 = -0.8; United States 2026 = 0.2; African Union 2026 = -1.5.
- Demand-side decomposition and current account impacts (2031 horizon) are reported by external balance groupings (excess surplus, excess deficit, broadly balanced) and by income group (G20 Advanced, G20 Emerging) in Figure 20.

### Policy recommendations (high-level priorities)
- Implement recommended macroeconomic policy mix (including fiscal consolidation where appropriate) while preserving growth-enhancing public investment.
- Prioritize structural reforms aligned with identified country-specific impediments:
  - Governance and public sector reforms where governance and public investment management are constraints.
  - Business regulation reforms where excessive product and consumer market regulation or regulatory variation across jurisdictions impede activity.
  - Monetary and financial sector reforms where underdeveloped capital markets constrain investment.
  - Innovation, R&D, labor market, fiscal, and external sector reforms as country-specific priorities described in the report.
- Strengthen international cooperation to:
  - Improve predictability of international economic rules.
  - Modernize trade rules to reflect services and supply chain resilience.
  - Avoid export restrictions.
  - Improve sovereign debt resolution mechanisms under G20 Common Framework and Global Sovereign Debt Roundtable.

*Source: G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth (chapter/section 27).*

### Annex II. Details on Survey of Growth Impediments

### Annex II. Details on Survey of Growth Impediments

### Survey scope and timing
- Annual survey of 20 IMF country teams for the G20 advanced economies (9), G20 emerging market economies (10), and the euro area.
- The survey reflects assessments in April, 2026.
- Results are reported in Figures 9, 10, 11, and 14, where each row reports the share of country teams (based on a simple count) within each G20 subgroup (columns) which gave each response.

### Purpose and questionnaire design
- The questions were designed to:
  - Assess impediments to growth in G20 economies in three broad categories—each with several possible growth impediments.
  - Assess challenges for implementing reforms to address these growth impediments.
- Country teams may provide optional additional context alongside their assessments.

### Assessment of growth impediments — scale definitions
- Country teams indicate the scale of growth impediment in each area, with definitions:
  - Minor impediment: negative medium-term growth impact of between -0.1 and -0.5 percentage points.
  - Moderate impediment: impact between -0.5 and -1.0 percentage points.
  - Major impediment: impact larger than -1.0 percentage points.

### Business regulations and labor markets (listed impediments)
- Insufficient labor market policies and regulations (e.g., insufficient retraining to face technological / trade shocks, weak employment protection, weak anti-discrimination laws)
- Insufficient consumer and product market regulations (e.g., insufficient pro-competition policies, insufficient anti-pollution regulations, insufficient consumer safety regulations)
- Inadequate policies to face demographic challenges (e.g., need for healthy aging policies, limited child support)
- Excessive labor market policies and regulations (e.g., too-high minimum wage, hiring / firing costs)
- Excessive consumer and product market regulations (e.g., administrative burden from excessive regulation)

### Intrajurisdictional barriers (listed impediments)
- Variation in business regulations (e.g., which create geographic barriers to expansion of high-productivity firms)
- Professional licensing and permits (e.g., which create geographic barriers to labor mobility)
- Other barriers to labor mobility (e.g., lack of pension portability)
- Other barriers to internal trade and firm growth (e.g., lack of infrastructure)
- Financial market fragmentation (e.g. barriers which prevent an efficient internal allocation of savings)

### Investment (listed impediments)
- Underdeveloped capital markets (e.g., lack of access to finance for startups, financial inclusion, undeveloped local bond markets)
- Inadequate public investment management (e.g., poor planning, budgeting, management of PPPs)
- Housing and zoning issues (e.g., zoning regulations which prevent the efficient use of land)
- Governance and institutions (e.g., judicial inefficiency, rule of law, recovery rates)

### Assessment of challenges to implementing reforms
- Country teams indicate the scale of challenge coming from two areas:
  - Political economy (e.g., winners and losers of reforms, federal vs. state/province vs. local government)
  - Sequencing of reforms
- Response options: major, moderate, minor challenge, or no challenge from that area.
- The definition of major, moderate, or minor challenge is left open-ended.

### Note on “excessive regulations”
- As discussed in the main report, “excessive regulations” refers to regulations that impede economic growth without sufficient improvement in their primary objective(s).
- The survey relies on the expert judgment of country desks, which may introduce some subjectivity into the assessments, but nonetheless offers valuable insights into the extent to which regulation may impose economic burdens.

*Source: Annex II. Details on Survey of Growth Impediments, G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth (assessments in April, 2026).*

### 2. The measure of deregulation is based on classification of the content of newspaper articles

### 2. The measure of deregulation is based on classification of the content of newspaper articles

### Measurement of deregulation using an LLM
- Source material: New York Times articles between 1960 and 2025.
- LLM implementation (Cascaldi-Garcia and Iacoviello (2026)):
  - Examines the first 3,000 characters of identified articles (approximately 700 words).
  - Assigns a score between 0 and 1, with 1 corresponding to a major federal deregulation and 0 corresponding to an article which has no deregulation content.
  - Different prompt variants derive daily measures of deregulation in different regions; daily measures are averaged at the quarterly frequency for empirical analysis.

### Bayesian structural VAR estimation of regulation effects
- Estimation target: impact of regulation on real investment and output per capita.
- Model:
  - Reduced-form Bayesian VAR at quarterly frequency: yt = c + sum(Ai yt−i) + ut, with ut ~ N(0, Σ).
  - Endogenous vector yt contains n×1 variables (see Data section).
- Bayesian prior and hyperparameters:
  - Minnesota prior (Litterman, 1986) in log levels; prior mean on Ai corresponds to a random walk.
  - Prior tighter around 0 for cross-variable coefficients than for a variable’s own lags.
  - Lag-decay hyperparameter α = 2.
  - Overall prior tightness λ set using hierarchical approach (Giannone and others (2015)), with a Gamma distribution hyperprior with mode 0.2 and standard deviation 0.4.
- Numerical settings:
  - Number of lags: six.
  - Posterior simulation: 10,000 draws, after 5,000 burn-in draws.
- Identification:
  - Structural shocks identified by Cholesky decomposition of the reduced-form residual covariance matrix.
  - Ordering:
    - United States: regulation ordered first and deregulation ordered second (identifying assumption: structural shocks to regulation can affect deregulation within a quarter, but not vice versa; and structural shocks to deregulation can affect other endogenous variables within a quarter, but not vice versa).
    - Other countries: deregulation ordered first (a regulation index is not available elsewhere), implying structural shocks to deregulation can affect other endogenous variables within a quarter, but not vice versa.
- Inference:
  - Impulse responses of real output per capita and real investment per capita to a one standard deviation deregulation news shock are estimated via the Bayesian structural VAR; posterior medians and posterior 68 (90) percent credible intervals are reported (see Annex Figures IV.1–IV.2 for full dynamic paths).

### Data and endogenous variables used in VAR analysis
- United States (Cascaldi-Garcia and Iacoviello (2026) “small VAR” specification):
  - Productivity: Utilization-adjusted total factor productivity (FRED; Fernald (2014)).
  - GDP: Real GDP for the business non-farm sector (per capita), log levels (FRED).
  - Investment: Real gross private investment and purchases of nondurable goods (per capita), log levels (FRED).
  - Consumption: Real per capita consumption of nondurable goods and services, log levels (FRED).
  - 1-year treasury yield: One-year treasury constant maturity rate (FRED).
  - Stock prices: S&P 500 stock index in log levels (LSEG Datastream).
- Germany:
  - GDP: Real GDP per capita (OECD, WEO).
  - Investment: Real investment per capita (OECD, WEO).
  - Consumption: Real consumption per capita (OECD, WEO).
  - Stock prices: Dax performance price index in log levels (LSEG Datastream).
- United Kingdom:
  - Productivity: Labor productivity, calculated as real GDP/employment (OECD, WEO).
  - GDP: Real GDP per capita (OECD, WEO).
  - Investment: Real investment per capita (OECD, WEO).
  - Consumption: Real consumption per capita (OECD, WEO).
- Japan:
  - Productivity: Labor productivity, calculated as real GDP/employment (OECD, WEO).
  - GDP: Real GDP per capita (OECD, WEO).
  - Investment: Real investment per capita (OECD, WEO).
  - Consumption: Real consumption per capita (OECD, WEO).
  - Stock prices: Nikkei 225 stock average in log levels (LSEG Datastream).

### Local projections using the IMF Structural Reform Database (SRD) indices
- SRD coverage and construction:
  - Summarizes degree of policy liberalization across reform areas: labor markets, product market regulation (PMR), domestic finance, and external finance.
  - Each index combines underlying policy indicators capturing restrictiveness or flexibility.
  - Dataset covers 90 countries—29 advanced economies, 45 emerging markets, and 19 low-income countries—over the 1973–2019 period, except the domestic finance index whose coverage stops in 2014.
  - Indices standardized on 0–1 scale and rescaled to 0–100; higher values indicate more market‑oriented (less restrictive) frameworks.
  - Indices are relative indicators and not exogenous to the business cycle; regression results are correlational rather than causal.
- Index descriptions:
  - Labor market index: strictness of employment protection legislation (e.g., dismissal rules, firing costs).
  - PMR index: regulatory barriers in key network sectors (notably electricity and telecommunications), entry conditions, ownership, independent regulation strength.
  - Domestic finance index: financial sector liberalization (credit controls, interest rate regulation, bank entry, supervision, securities market development).
  - External finance index: capital account openness (legal restrictions on cross‑border transactions across asset classes).
- Local projection specification (Jordà (2005)):
  - y_{i,t+h} − y_{i,t−1} = δ_{t}^h + β_h S_{i,t} + γ_h' X_{i,t} + ε_{i,t+h}
    - y_{i,t} = log of outcome (real GDP per capita, employment, capital, or total factor productivity).
    - S_{i,t} = change in liberalization index, standardized to a one standard deviation change.
    - X_{i,t} controls: 2 lags of foreign demand, changes in general government revenues and expenditures (as a share of GDP), domestic investment share, real GDP per capita gap vs the United States (in log points).
    - Standard errors: Driscoll-Kraay.
- Heterogeneity by initial regulatory level:
  - Interaction specification:
    - y_{i,t+h} − y_{i,t−1} = δ_{t}^h + β_{1}^h S_{i,t} * HighLevel_{i,t−1} + β_{2}^h S_{i,t} + γ_h' X_{i,t} + HighLevel_{i,t−1} + ε_{i,t+h}
    - HighLevel_{i,t−1} = dummy equal to one when the level of regulation at t−1 is in the top 30 percent.
    - β_{1}^h + β_{2}^h = average impulse response for countries with high pre-existing regulation; β_{2}^h = impact among other economies.
- Empirical findings (summary):
  - Countries with a higher pre-existing level of regulation appear to benefit most from labor market liberalization events, producing higher employment and TFP responses.
  - Capital accumulation seems to increase slightly but the result is not statistically different from zero.
  - Annex Figure IV.3 displays impulse responses for employment, capital, and TFP for each liberalization index; Figure IV.4 shows differential effects of labor market reforms by initial regulation level.

### Telecommunications regulation, ICT investment, internet diffusion, and AI preparedness
- Telecommunications regulation index:
  - Source: OECD Energy, Transport and Communications Regulation (ETCR) database.
  - Range: 0 to 6, with higher values indicating more restrictive and less market-friendly regulatory frameworks.
  - Interpretation: A decline in the index = movement toward a more market-friendly telecommunications regulatory environment.
- ICT investment analysis:
  - Data: Eurostat national accounts on ICT-related investment (ICT equipment, software, databases, related digital capital).
  - Coverage: European economies over 1995–2022.
  - Dependent variable: ICTInvestment_{ct} = share of ICT investment in total gross fixed capital formation.
  - Baseline panel: ICTInvestment_{ct} = β TelecomReg_{ct} + δ_c + γ_t + ε_{ct}, with country and year fixed effects; standard errors clustered at the country level.
  - Interpretation: Negative β indicates lower regulatory restrictiveness (more market-friendly) associated with higher ICT investment.
- Internet penetration and diffusion:
  - Dependent variable: InternetPenetration_{ct} = percentage of individuals using the internet (World Bank WDI).
  - Panel: InternetPenetration_{ct} = β TelecomReg_{ct} + δ_c + γ_t + ε_{ct}, with country and year fixed effects.
  - Interpretation: Negative β indicates lower telecommunications regulatory restrictiveness associated with higher internet penetration.
- Distributional implications (household-level):
  - Data: Gallup World Poll microdata on home internet access merged with WDI national internet penetration.
  - Focus: households in bottom and top 40 percent of within-country income distribution.
  - Estimating equation:
    - InternetAccess_{ict} = β InternetPenetration_{ct} + δ LowIncome_{ict} + μ(InternetPenetration_{ct} × LowIncome_{ict}) + X_{ict} + δ_c + γ_t + ε_{ict}
    - InternetPenetration_{ct} expressed in 10 percentage-point units.
    - LowIncome_{ict} = bottom 40 percent dummy; comparison group = top 40 percent.
    - Controls X_{ict}: age, age squared, gender, educational attainment, urban residence.
    - Survey weights: Gallup World Poll weights applied; standard errors clustered at country level.
  - Key empirical summary:
    - Globally, a 10 percentage-point increase in national internet penetration is associated with about a 5-percentage point increase in the probability that a household reports home internet access, but low-income households remain persistently less connected even as national internet penetration increases.
- AI preparedness and digital foundations:
  - IMF AI Preparedness Index (AIPI): composite measure covering digital infrastructure, human capital, innovation capacity, labor market adaptability, institutional quality, and regulatory readiness.
  - Cross-sectional specification:
    - AIPI_c = α + β InternetPenetration_c + ε_c
    - InternetPenetration_c = most recent internet penetration rate.
  - Purpose: descriptive association between foundational digital connectivity and AI preparedness (not causal).

### Table IV.2 — Internet penetration and convergence in household digital access (selected results)
- Coefficients (standard errors in parentheses; significance: * p<0.10 ** p<0.05 *** p<0.01):
  - Internet penetration:
    - World: 0.00528*** (0.000827)
    - AEs: 0.00441* (0.00239)
    - EMDEs: 0.00540*** (0.000951)
    - OECD: 0.00632*** (0.00149)
  - Low-income household:
    - World: -0.0667*** (0.0111)
    - AEs: -0.200*** (0.0459)
    - EMDEs: -0.0324*** (0.0106)
    - OECD: -0.253*** (0.0409)
  - Internet penetration × Low-income:
    - World: -0.000485** (0.000200)
    - AEs: 0.00166*** (0.000569)
    - EMDEs: -0.00199*** (0.000425)
    - OECD: 0.00236*** (0.000511)
- Sample and fit:
  - Observations:
    - World: 915357
    - AEs: 226324
    - EMDEs: 689033
    - OECD: 239341
  - R-squared:
    - World: 0.473
    - AEs: 0.277
    - EMDEs: 0.374
    - OECD: 0.316
- Note: Dependent variable equals one if respondent reports home internet access. Internet penetration measured as national share using the internet (World Bank, WDI), expressed in 10 percentage-point units. Sample covers 2009–2016. Regressions include individual controls and country and year fixed effects; Gallup survey weights applied; standard errors clustered at country level. The interaction term captures whether increases in national internet penetration are associated with faster gains in home internet access among lower-income households relative to higher-income households (convergence).

*Source: G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth (IMF) — chapter content provided.*

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*References as listed in "g20-report-on-strong-sustainable-balanced-and-inclusive-growth - References" (PDF).*

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_Source: https://www.imf.org/-/media/files/research/imf-and-g20/2026/g20-report-on-strong-sustainable-balanced-and-inclusive-growth.pdf_