A new IMF report highlights that smarter public spending—focused on reallocating resources, improving efficiency, and linking budgets to performance—can significantly boost long-term growth, especially in emerging markets where growth could reach up to 11%.

Rwanda serves as a prime example of how efficient spending can lead to substantial social and economic improvements, with per capita public expenditure increasing from $150 to $420 over two decades, resulting in better access to mobile phones, electricity, clean water, and longer life expectancy.

Long-term strategies such as adjusting retirement ages to match life expectancy, tightening procurement rules, and conducting regular spending reviews can reveal significant savings, as exemplified by Slovakia’s potential 7% reduction in expenditures.

While implementing spending reforms faces challenges due to rigid legal mandates and fixed costs, countries like Estonia, Sweden, and Togo have demonstrated that reforms—including multiyear planning, cost-benefit analyses, and digitalisation—can enhance efficiency.

Improving investment efficiency by just 10 percentage points can add roughly 1.4% to long-term growth, especially when combined with policies supporting R&D, education, and infrastructure.

Reallocating even 1% of GDP from low-impact consumption to sectors like infrastructure and human capital can boost output by up to 3.5% in emerging markets and 1.5% in advanced economies over 25 years, also helping to reduce income inequality.

Focusing on strategic reallocation of funds toward high-impact areas such as investment, education, and innovation is crucial for sustainable growth, rather than simply increasing overall spending.

Effective public spending involves reallocating existing funds more efficiently—such as boosting investment and education—and improving technical efficiency, as demonstrated by Canada.

The IMF report emphasizes that governments worldwide can significantly enhance economic growth by increasing the efficiency of public spending, potentially raising output by one-third, with the most substantial gains seen in emerging and developing economies.