WASHINGTON: A senior International Monetary Fund official has described it as absolutely critical for European countries to boost growth and productivity to catch up with the United States.
Era Dabla-Norris, deputy director of the IMF’s Fiscal Affairs department, called on European policymakers to make smarter spending choices in an interview at the Fund’s headquarters.
The IMF estimates global public debt will rise to 100% of economic output by 2029, driven largely by the world’s largest economies.
The Fund’s recent Fiscal Monitor report urged countries to spend money more wisely by reallocating existing spending into growth-boosting areas like research and development.
Dabla-Norris noted that advanced economies find it particularly hard to find fiscal room for maneuver due to very limited discretionary spending.
She emphasised that Europe has lagged far behind the United States in economic growth, making spending reallocation absolutely critical.
The IMF calculated that advanced economies could raise output by 1.5% over five to ten years by redirecting administrative overheads equal to 1% of GDP toward private investment and research.
Dabla-Norris described this reallocation strategy as a winning approach for Europe that focuses on higher-return spending rather than increased expenditure.
Regarding the United States, she acknowledged the world’s largest economy still maintains some fiscal space but urged policymakers to bend the debt curve to prepare for future crises.
She stressed that while future shocks cannot be forecast, having fiscal space for maneuver remains crucial for all countries facing unexpected economic challenges.
For China, Dabla-Norris said the country’s current expansionary fiscal stance appears appropriate for addressing flagging growth and deflationary pressures.
She recommended that Chinese authorities implement social safety net reforms to shift from export-driven growth toward greater consumption-led expansion.
The IMF official cautioned that excessive investment can become inefficient without proper rebalancing of economic drivers. – AFP
