The International Monetary Fund (IMF) issued a concluding statement on 19 May 2015 following its regular discussions with France under Article IV of the IMF’s articles of agreement.

The IMF considers that although France is making a solid recovery in the short term its medium term prospects are lowered by structural rigidities. France has made progress on resolving these structural problems for example by reducing the tax wedge on labor together with making supply side reforms. The IMF considers that further efforts are required to improve the efficiency of public spending, improve flexibility for social partners and continue the supply side measures.

The IMF is estimating GDP growth at 1.2% for 2015. Household consumption has increased and exports are also set to improve. Investment however has not increased and structural rigidities continue to hold back growth which is projected to average only 1.25% over the next five years.

Public spending, driven by local governments, social security and the government wage bill reached 57.5% of GDP in 2014, which is 11% above the average for the Euro area. Spending pressures have pushed up debt and have also increased the tax burden on the private sector to very high levels. Following years of pursuing fiscal adjustment thought higher government revenues the IMF considers that the switch to consolidation of expenditure is the correct course.

In addition to structural measures to keep spending flat and regular expenditure reviews France needs tighter caps on local taxes and borrowing. Social security reforms should include an increase in the effective retirement age, streamlining of special pension regimes and more efficiency in welfare benefits.

Steps have been taken to lower the tax wedge for lower salaries through measures such as the Pacte de Responsibilité and the CICE tax credit, the agreements to enhance flexibility of social partners at the enterprise level and other employment law changes. The tax credit for competitiveness and employment (CICE) applied from 2013 onward and gives enterprises a tax credit computed as a percentage of their payroll for salaries below a certain level. This therefore serves as an incentive for employment. The IMF considers that further structural reforms are required to reduce the unemployment rate.

The decline in France’s competitiveness over recent decades has dampened exports and investment. The IMF considers that the efforts led by the Business Simplification Council should reduce red tape. France also needs to reduce the disincentive for smaller companies to grow above certain employee thresholds, by easing legal requirements relating to labor, accounting, tax and profit sharing.