How Strong Infrastructure Governance Can End Waste in Public Investment
IMF Blog, September 3, 2020
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Bibliographic details
- Authors: Gerd Schwartz, Manal Fouad, Torben Hansen, Genevive Verdier
- Published: September 3, 2020
Overview and context
- Authors: Gerd Schwartz, Manal Fouad, Torben Hansen, Geneviève Verdier
- Date: September 3, 2020
- Context: COVID-19 has had a profound impact on people, firms, and economies worldwide; public infrastructure investment will play a key role in recovery but resources are tight and must be spent wisely through good infrastructure governance.
Key findings and statistics
- Countries waste on average about 1/3 of their infrastructure spending due to inefficiencies.
- The loss can surpass a staggering 50 percent in low-income countries.
- Estimates show that over half of these losses could be made up through better infrastructure governance.
- The IMF’s Public Investment Management Assessments have been carried out in more than 60 countries.
Why strong infrastructure governance matters
- Public investment projects tend to be large, long-term, and complex—creating fertile ground for corruption, delays, and cost overruns when governance is weak.
- Well-designed and well-implemented public infrastructure can:
- Stimulate weak aggregate demand.
- Help boost more inclusive growth.
- Reduce inequalities.
- Create economic opportunities.
- Improve resilience to climate change and future pandemics.
- Investment priorities highlighted: health systems, digital infrastructure, environmentally-conscious infrastructure, and maintenance of aging infrastructure in advanced economies (roads, bridges, healthcare systems).
Practical areas for reform and policy actions
- Strengthen institutions and frameworks to plan, allocate, and implement quality public infrastructure.
- Control corruption in infrastructure projects.
- Mitigate and manage fiscal risks associated with public investment.
- Integrate planning and budgeting across the public investment cycle.
- Adopt sound practices early in the public investment cycle, particularly during project appraisal and selection.
- Maintain and manage public infrastructure assets to avoid deterioration in public asset value.
- Build resilience against climate change in infrastructure planning and asset management.
- Focus not only on having well-designed frameworks but also on ensuring they function effectively in practice.
Illustrative country practices
- Chile: developed a comprehensive infrastructure governance system that has generated cost-savings.
- Korea: a national one-stop shop for public procurement has improved transparency and integrity in public procurement.
- South Africa: established guidelines and standards for the maintenance of public infrastructure to avoid deterioration of assets like roads and bridges.
Vision for recovery
- The economic recovery from COVID-19 presents an opportunity to “build a bridge to the future” through quality public infrastructure that yields economic and social dividends.
- Emphasis: when spending more on infrastructure, countries need to “spend better and smarter” so every dollar counts.
Forward-looking note
- The October 2020 Fiscal Monitor will include more of the IMF’s analysis and policy advice on how countries can best invest in infrastructure to build a sustainable economy and recovery.
How Strong Infrastructure Governance Can End Waste in Public Investment — Gerd Schwartz, Manal Fouad, Torben Hansen, Geneviève Verdier, September 3, 2020