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View all search resultsPublic investment is fiscally responsible
Governments’ fiscal policies should be judged by whether they strengthen the economy’s capacity to meet public obligations over time.
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(left to right) Finland’s Finance Minister and Deputy Prime Minister Riikka Purra, World Bank president Ajay Banga, Thailand’s Finance Minister and Deputy Prime Minister Ekniti Nitithanprapas, International Monetary Fund (IMF) managing director Kristalina Georgieva and BBC economics editor Faisal Islam sit during the "Building Resilience in a Fragmented World" panel at the Annual IMF and World Bank Meetings at the Queen Sirikit National Convention Center in Bangkok on Oct. 13, 2026. (AFP/Lillian Suwanrumpha)
W
hether a hospital can hire nurses, a school can repair its roof, or a country can build a clean-energy grid often depends on factors that rarely make the news. For many governments, rules limiting deficits, debt or spending ultimately determine whether they can invest in the future.
These constraints matter more than ever. As finance ministers gather in Bangkok for the International Monetary Fund (IMF) and World Bank Annual Meetings, the IMF is already warning that debt is near its highest level since World War II. The IMF’s message for governments is that fiscal consolidation is essential, even if it comes at a high political cost. Painful choices today, it is assumed, will put public finances on a stronger footing tomorrow.
But cutting spending that supports growth and resilience may not only inflict hardship now. It also may weaken the economy and make debt harder to reduce later. Governments’ fiscal policies should be judged by whether they strengthen the economy’s capacity to meet public obligations over time.
This insight comes from the Global Council on New Economics for the 21st Century, which I cochair with Spain’s first vice-president, Carlos Cuerpo. The council’s first policy brief, “Fiscal Rules and Long-Term Inclusive Growth,” argues that while fiscal responsibility is the right goal, it cannot be properly measured through deficits and debt targets alone. What public spending builds and how it strengthens the economy over time, must count, too.
After all, if you cut spending in a downturn, economic activity and tax revenues will fall. Your target will recede as you chase it, because debt will rise relative to GDP. In 2013, the IMF’s own reassessment of European fiscal adjustments during the recent crisis found that forecasters had badly underestimated the damage that consolidation caused to output. The claim that growth collapses once debt surpasses 90 percent of GDP was used to justify cuts across Europe and the United States. But the claim rested on a spreadsheet error.
When an economy is running below capacity, well-directed public investment raises productive capacity and crowds in private investment. Public investment is not a cost to be minimized, but a lever on which private investment and growth depend. Yet whenever fiscal targets take priority, public investment is the first thing to be cut. A project is easier to postpone than a salary, even when doing so undermines the government’s own economic strategy. Mexico’s recent experience demonstrates this tension. Its fiscal adjustment caused physical public investment to fall from 3.1 percent of GDP in 2024 to 2.2 percent in 2025, even though its Plan México program depends on sustained investment in infrastructure, water, energy and skills.
Standard accounting practices reinforce this bias. If you borrow to build a publicly owned hospital, conventional debt measures will record the liability but exclude the asset (the hospital). Short-term forecasts then compound the problem. A three-year forecast captures the cost of an investment and almost none of its return.
