By William Schomberg
CHENGDU, China (Reuters) – The world’s leading economies have discussed how to take advantage of their lower debt costs to spend more on investment as a way to boost weak economic growth, the head of the Organisation for Economic Co-operation and Development said.
“Already lower interest rates create more fiscal space,” OECD Secretary General Angel Gurria told Reuters on Sunday on the sidelines of a meeting of finance ministers and central bank governors from the Group of 20 economies.
“The average cost of debt takes some time to show the full impact of interest rates because it’s not only (over) six months, it’s over several years.”
The G20 is trying to find new ways to inject more energy into the world economy after extraordinary measures by central banks, which have cut interest rates close to zero, or below in some cases, produced only lackluster growth.
The focus has turned more squarely to what governments can do through increased spending and reforms to make their economies more efficient.
China, Japan and Britain have already started easing their fiscal stance or hinted at plans to do so.
Japanese Prime Minister Shinzo Abe, taking advantage of the Bank of Japan’s negative interest rates, has ordered his government to unveil a large spending package by the end of this month, including a so-called fiscal investment and loan program aimed at spurring private-sector investment.
However, high levels of public debt in many countries represent a limit on big increases in spending.
Gurria said higher infrastructure spending featured prominently at the G20 meetings in the southwestern Chinese city of Chengdu on Saturday and Sunday.
“We’re talking about creation of fiscal space. Basically this translates into room for maneuver to undertake certain investments that could be strategic in certain sectors,” he said.
The official G20 communique was unlikely to go into much detail about fiscal policy “but if you look at the number of papers, the number of things that were discussed, the issue is very active,” Gurria said.
Governments could leverage their spending by inviting private investors to back up their financing. “Maybe a little bit of public finance will detonate a lot more of private finance,” he said.
In that spirit, the European Union has created in the middle of last year a fund of 21 billion euros ($23.04 billion), which is to attract private capital to generate a total of 315 billion euros in investment over three years in various infrastructure, and research and development projects in the 28-nation block.
The fund exceeded targets already in its first year thanks to unexpectedly strong demand from small business and co-financing from the private sector.
(Additional reporting by Tetsushi Kajimoto and Jan Strupczewski; Writing by William Schomberg; Editing by Jacqueline Wong)