Well-Designed Regulatory and Institutional Reforms Can Boost Economic Growth

IMF Blog, August 25, 2026

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Publication: Nicolas Fernandez-Arias, Marwa Ibrahim, Colombe Ladreit; August 25, 2026.
Context: Group of Twenty economies account for about 85 percent of global output.
Outlook: Forecast annual growth for the G20 of just 3 percent in 2031, near the lowest since the global financial crisis.
Central message: Poorly designed structural policies, excessive or mis-targeted regulations, and weak institutional frameworks are significant impediments to medium-term growth.

IMF G20 country-team survey highlights three prevalent policy-related impediments:
- business regulations and labor markets;
- intrajurisdictional barriers;
- investment barriers.
Regulatory constraints by prevalence:
- Around half of the G20’s advanced economies face constraints from excessive labor-market, product-market, or consumer protection regulations.
- Three quarters of G20 emerging markets face constraints from excessive labor-market, product-market, or consumer protection regulations.
- Some economies have too little regulation in these areas.
Advanced-economy specific impediments noted:
- inadequate policies to address demographic challenges, such as population aging;
- restrictions on housing and land use.
Emerging-market specific impediments noted:
- underdeveloped capital markets;
- weak public-investment management;
- deficiencies in governance and institutions.
European Union: differences in regulations, licensing, permitting, and financial markets create intrajurisdictional barriers preventing free movement of workers, capital, goods, and services across the bloc.

News-based measures of major deregulatory reforms show association with a boost to investment and growth in several G20 advanced economies.
Cross-country evidence: liberalizing labor-market reforms are associated with output gains only where existing regulations are relatively restrictive.
Implication: the challenge is not simply to reduce regulation, but to get it right—careful calibration is essential.

Market-friendly reforms (e.g., easing entry in regulated sectors) have become less frequent since the 1980s and 1990s.
IMF country teams identified political economy factors as a key constraint in most G20 economies, including:
- disagreements between stakeholder groups in an economy;
- disagreements between different levels of government;
- disagreements between different economies in a union.
Required enablers to overcome political-economy constraints:
- credible institutions;
- clear communication and engagement with affected groups;
- measures to mitigate adverse effects, such as retraining or reskilling programs or gradual implementation of reforms.

Well-designed regulation is critical to capture productivity benefits from adopting new technologies while mitigating risks.
The 2026 report highlights that more market-friendly telecommunications frameworks have supported:
- investment in digital infrastructure;
- broader internet diffusion;
- foundations for the adoption of artificial intelligence.

Strengthen regulatory and institutional frameworks to minimize policy-related impediments and ensure benefits outweigh costs.
Calibrate reforms to country-specific starting points—especially for labor-market liberalization where regulations are currently restrictive.
Address institutional weaknesses that impede the efficiency and scale of public and private investment, including public financial management and governance.
Use mitigation measures to manage distributional effects and political economy resistance (retraining, reskilling, gradual implementation).
Maintain sound macroeconomic policies as the bedrock for growth while pursuing well-designed structural reforms.

This blog is based on the 2026 G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth, prepared by IMF staff.

G20 Report on Strong Sustainable Balanced and Inclusive Growth
- G20 Report on Strong Sustainable Balanced and Inclusive Growth (Markdown version)
- G20 Report on Strong Sustainable Balanced and Inclusive Growth (PDF)