G20 Economies Should Target Reforms to Boost Medium-Term Growth Prospects
For most Group of Twenty economies, growth is poised to weaken over the next five years and remain well below what was typical in the two decades before the pandemic.
That’s one of the biggest shared challenges for the group, which accounts for about 85 percent of global gross domestic product. Growth is more robust across the African Union, which joined the G20 last year, but booming populations mean those economies also must create jobs for millions of young people entering the labor market.
For both groups, as well as the European Union, lifting growth is essential to improving outcomes for people, and there’s a common solution: implementing priority reforms can significantly boost prospects for growth over the next five years, or medium term, as our new report to the G20 outlines. Our analysis also indicates that payoffs from structural reforms are greatest when they are carefully sequenced and reflect social consensus.
Various challenges underscore why it’s time to invest in growth-enhancing reforms. Subdued productivity growth, reinforced in some countries by adverse demographic trends, holds back potential growth, as Chapter 3 of the April 2024 World Economic Outlook details. Sustainable growth also is imperiled by elevated public debt, and increased geoeconomic fragmentation and protectionism.
As the Chart of the Week shows, the biggest priority across countries in these groups is reforming fiscal policy frameworks to aid lasting consolidation of government budgets.
Specifically, most G20 advanced economies and several EU economies would benefit from tighter public spending limits, while for most G20 emerging market and developing economies reforms to boost government revenues should be prioritized. Several African Union countries could benefit from enhanced fiscal transparency.
For many G20 and African Union economies, there are two other key areas for high priority structural reforms. First, the quality of education and skill training must be improved to better match skills with job opportunities. Second, reforms to accelerate the energy transition are essential, such as improving renewable energy capacity, enhancing the carbon tax efficacy, and phasing out fossil fuel subsidies. In several African Union economies, governance reforms are also urgently needed to strengthen the rule of law, fight corruption and improve public finance management.
