The IMF’s latest G20 Report on Strong, Sustainable, Balanced and Inclusive Growth forecasts annual growth across the G20 of just 3% by 2031, close to the lowest level seen since the global financial crisis.
The IMF said poorly designed structural policies, regulatory barriers and weak institutions are limiting investment and productivity at a time when economies are already facing pressures from energy price shocks, policy uncertainty and rising protectionism.
According to the report, around half of G20 advanced economies and three-quarters of emerging market economies face growth constraints linked to excessive labour-market, product-market or consumer-protection regulations.
However, the IMF stressed that deregulation is not always the answer. “The challenge is not simply to reduce regulation, but to get it right,” the report said.
The IMF noted that while regulation plays a critical role in addressing market failures and protecting consumers, excessive or poorly targeted rules can reduce investment, hinder job creation and slow economic expansion.
In advanced economies, IMF country teams identified population ageing, housing restrictions and land-use regulations as significant barriers to growth.
In emerging market economies, the main challenges were found to be underdeveloped capital markets, weak public investment management systems, governance shortcomings and institutional weaknesses.
The report highlighted the European Union as an example where regulatory differences between member states continue to restrict the movement of labour, capital, goods and services across borders.
The IMF found that major deregulatory reforms have generally been associated with stronger investment and economic growth in several G20 economies.
However, the report cautioned that labour-market liberalisation tends to produce positive results only where existing regulations are particularly restrictive.
The study also found that market-oriented reforms have become less common than during the 1980s and 1990s.
Political disagreements between stakeholder groups, different levels of government and member states within regional blocs were identified as major obstacles to reform implementation.
The IMF said overcoming these challenges requires strong institutions, clear communication and support measures to help individuals affected by reforms, such as retraining and skills development programmes.
The report also linked regulatory reform to emerging technologies such as artificial intelligence (AI).
According to the IMF, more market-friendly telecommunications frameworks have supported investment in digital infrastructure and wider internet access, helping create conditions needed for the adoption of AI technologies.
The IMF concluded that while sound macroeconomic policies remain important, stronger medium-term growth will also depend on well-designed regulatory and institutional frameworks. “Strengthening medium-term prospects for the G20 requires well-designed regulatory and institutional frameworks that minimise policy-related impediments and provide benefits that clearly outweigh their costs,” the report said.
–IMF/ChannelAfrica–
