Meeting the Challenges of Growth and Infrastructure Investment

provide new economic opportunities for millions of people around the world. Indeed, globally, since the onset of the global financial crisis, growth has been too low, for too long, and benefitted too few.

Second, there is a growing consensus towards the need for more public investment.

In advanced economies, the case for an infrastructure push is compelling. Public investment is at historic lows–it has steadily decreased from over 6 percent of GDP in the late 1960s to less than 4 percent more recently. Further, there is a demand slack, and money is cheap. Meanwhile, in emerging and developing Asia, public investment has been stronger than in the advanced economies–averaging 8 percent of GDP since 2008. But as you know, there are still large and persistent infrastructure gaps. The World Bank estimates that over 660 million people do not have access to clean drinking water while 1.3 billion people live without electricity.

Third, if properly formulated, more public infrastructure investment may enhance, rather than weaken, fiscal positions as shown in many countries. IMF research suggests that even debt-financed investment can reduce public-debt-to-GDP ratios because of the growth effects. But that investment needs to be effective and efficient. We estimate that, across countries, on average, about one-third of public investment is lost partly through waste, corruption or bad management. So improving the efficiency of public investment is essential–including for countries where fiscal space is limited. Fiscal space is concerned with whether governments can raise spending or can lower taxes, without endangering market access and debt sustainability.

In short, we need more public infrastructure investment. And more importantly, we need more, better, and smarter public infrastructure investment.

The key is whether and how a good framework can be implemented for public infrastructure investment management and management of fiscal risks.

First, why does public infrastructure investment need to be better managed?

Infrastructure investment is essential to create growth that is sustainable in economic, social, and environmental terms. Too much spending can be costly; too little can handicap growth. Therefore, given scarce resources, policymakers need to do a delicate balancing act: assess the advantages and disadvantages of choosing a particular project, and consider investment efficiency, volatility, regulation, and coordination. This requires public investment management.

Second, why do we need fiscal risks management? There are decisions on how increased spending could affect future fiscal spending and sustainability. This requires management of fiscal risks. In particular, substantial risks need to be managed well in the widely-practiced public-private partnership (PPP) initiatives.

Let me elaborate more on each of these two aspects. First, public investment management. The Fund’s work has shown the advantages of strong institutions for public investment management. These advantages include: less volatile investment, more predictable composition of spending and better execution of capital budgets. There is also a