The International Monetary Fund (IMF) has advised countries to adopt a fiscal policy mix that involves research and development (R&D) grants for innovative start-ups in other to grow their GDP by two per cent.
The IMF gave the tip in the executive summary of the fiscal monitor for April, 2024, seen by NewsNGR.
According to the IMF, advanced and emerging market economies need a policy mix that supports innovation more broadly at the global technology frontier.
The IMF said it has become essential because fundamental research with broad applications is underfunded in many countries.
“This mix entails a combination of public funding for fundamental research, research and development (R&D) grants for innovative start-ups, and R&D tax incentives to encourage applied innovation across firms,” the IMF said adding “Close public–private cooperation can create positive synergies at a lower cost to public finances.”
The institution said its analyses show that a well-designed innovation policy mix can yield substantial growth and fiscal dividends, raising long-term GDP by $3 to $4 for each dollar of fiscal cost.
IMF added, “This implies that increasing R&D support by 0.5 percentage point of GDP annually, or about 50 percent of the current level in Organisation for Economic Co-operation and Development economies, could raise GDP by up to 2 percent and reduce the debt-to-GDP ratio for an average advanced economy over an eight-year horizon.
“Economies with ample fiscal space could accommodate this approach, but funding for innovation may be problematic for countries with immediate fiscal constraints.”