The International Monetary Fund has praised Emmanuel Macron’s plans to revamp the French economy, calling for “deep reforms” and supporting the new government’s efforts to fix the country’s public finances.
In a concluding statement from its annual review of the French economy, the IMF said the new president’s vision to overhaul France’s onerous labour code and reforms to improve wage flexibility were “broad and ambitious”.
Mr Macron has vowed to reduce France’s budget deficit over his five-year term. His government is aiming to shrink the public finances’ black hole from 3.4 per cent of GDP last year to less than 1 per cent by 2022. The pro-business president is also targeting corporate tax reduction and tax breaks for entrepreneurs.
In its first review of the French economy since the election, the IMF welcomed the planned fiscal consolidation, calling spending cutbacks “crucial” and urging France to overhaul expenditure at central and local government levels.
“Comprehensive spending reviews should identify areas for efficiency gains and savings”, said the fund.
“Local governments would need to be part of these efforts, in a new pact with the state, with an agreed system of monitoring and incentives.”
Tighter spending, coupled with an acceleration in economic growth, will allow France’s debt to GDP ratio to begin declining from over 90 per cent, said the IMF.
Following warnings from the country’s state auditor over a €9bn gap in the public finances over the next two years, the IMF backed the government ploughing ahead with an immediate spending pullback this year.
But it laid out the scale of the task facing Mr Macron if he is to meet his target of reducing the deficit to the EU’s upper limit of 3 per cent of GDP. In 2018, the government would need to carry out austerity measures worth 1 per cent of GDP – “an exceptional effort by historical standards”, said the fund.
The IMF singled out the country’s high public sector wage bill, bloated local government spending, and healthcare expenditure, as areas for reform.
Mr Macron’s government is planning to fast-track his landmark labour reform bill through parliament by September. The attempts to move to a Nordic-style wage bargaining system would help bring down France’s near double-digit unemployment rate, said the IMF.
“Continued wage moderation will be critical to support job growth and competitiveness—this could be supported by enhancing firm-level flexibility in wage negotiations, limiting increases in the minimum wage to inflation”, added the report.
Read more on Macron’s economic vision for France