The International Monetary Fund said Tuesday that the German government should adjust its controversial fiscal spending limit in an effort to free up more public investment, as the country faces growing spending pressures.
Germany, Europe's largest economy, has a constitutionally
enshrined fiscal rule, known as its debt brake, that restricts government
spending to a deficit of 0.35% of gross domestic product in normal times.
The IMF said that while fiscal rules help to ensure that debt remains at sustainable levels, authorities should consider moderately easing the debt brake to accommodate rising spending needs.
Germany faces extra spending pressures, notably due to its
ageing population, but also will need to confront challenges associated with
increased defense spending, alongside upgrades to infrastructure in transport,
energy and communications, the Washington DC-based organization said.
"Our recommendation is that this easing could be by one
percentage point of GDP, which would keep the debt-to-GDP ratio on a downward
path," Kevin Fletcher, the head of the IMF's staff visit to Germany, said
in a press conference in Berlin.
Such an easing would allow more room for much-needed public
investment and other key priorities, the IMF said.
The debt brake has caused headaches for Germany's current
coalition government. The country's top court last year declared government
spending plans unconstitutional as it broke fiscal rules, delaying the 2024
budget and leading to calls for a reform of the law.
Nevertheless, the IMF said Germany's economic growth is
expected to accelerate in 2025, after a projected 0.2% rise in GDP in 2024, led
by rising real wages that will drive higher household spending.
Private investment is also set to recover in 2025 on the
back of improved demand and anticipated monetary-policy easing from the
European Central Bank, the IMF added.