{
  "title": "Public Investment for the Recovery",
  "publication": "IMF Blog, October 5, 2020",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2020/10/05/blog-public-investment-for-the-recovery",
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  "summary": "Governments around the world are taking extraordinary measures to respond to the COVID-19 crisis. While maintaining the focus on addressing the health emergency and providing lifelines for households and businesses, governments need to prepare economies for the transition to the post-COVID-19 world—",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Publication: \"Public Investment for the Recovery\" by Vitor Gaspar, Paolo Mauro, Catherine Pattillo, Raphael Espinoza; October 5, 2020.\n- Context: Governments responding to COVID-19 must address the health emergency and provide lifelines while preparing economies for the post-COVID-19 transition, including helping people get back to work.\n- Core proposition: Increasing public investment in advanced and emerging market economies could help revive economic activity, create jobs directly in the short term and indirectly over a longer period, and strengthen confidence in the recovery."
    },
    {
      "heading": "Potential macroeconomic impacts (quantified)",
      "content": "- Increasing public investment by 1 percent of GDP could:\n  - boost GDP by 2.7 percent,\n  - raise private investment by 10 percent,\n  - increase employment by 1.2 percent,\n  - provided investments are of high quality and existing public and private debt burdens do not weaken the private sector response."
    },
    {
      "heading": "The case for scaling up investment",
      "content": "- Pre-pandemic context:\n  - Global investment had been weak for over a decade.\n  - Significant infrastructure needs: transportation, clean water, sanitation, and more—especially in emerging and developing economies.\n- Immediate pandemic priorities:\n  - Investment is urgently required in health care, schools, safe buildings, safe transportation, and digital infrastructure.\n- Financial environment:\n  - Low interest rates globally make borrowing at low cost feasible.\n  - Savings are plentiful, private sector investment is depressed, and many people are unemployed and available to take jobs created through public investment.\n- Job creation potential (per million dollars spent):\n  - Traditional infrastructure: between 2 and 8 jobs.\n  - Research and development, green electricity, and efficient buildings: between 5 and 14 jobs.\n- Timing and implementation:\n  - Investment projects can take time to implement; to create jobs immediately, countries should:\n    - ramp up infrastructure maintenance, where safe,\n    - review and restart promising projects delayed by the crisis,\n    - speed up projects in the pipeline to bring them to fruition within the next two years,\n    - plan new projects aligned with postcrisis priorities."
    },
    {
      "heading": "Striking the right balance (financing considerations)",
      "content": "- Constraints:\n  - Some countries face tight financing conditions making borrowing to invest difficult.\n- Approaches:\n  - Gradual scaling-up of public investment financed by borrowing could pay off if rollover risks and interest rates do not increase too much and projects are chosen wisely.\n  - Countries may need to reallocate spending or raise additional revenue for priority investments.\n- Support for low-income countries:\n  - Poorer countries, especially in the context of the Sustainable Development Goals 2030, will need grant support from the international community.\n  - Official aid noted: $10 billion allocated in 2018 falls short of the $25 billion of investment required annually in low-income economies, according to IMF staff estimates.\n- Climate adaptation:\n  - Investing in adaptation to climate change is critical for countries susceptible to floods and droughts."
    },
    {
      "heading": "Maintaining the quality of investment projects",
      "content": "- Risks when scaling up quickly:\n  - The cost of an individual project can increase by as much as 10 to 15 percent when undertaken in a period of particularly high investment.\n  - Cost increases and project delays tend to be higher and longer if projects are approved and undertaken when public investment is significantly scaled up.\n  - Fast increases in public investment carry the risk of facilitating corruption.\n- Governance and efficiency:\n  - Improving governance of project selection and management is crucial.\n  - There is scope to improve the efficiency of infrastructure by one third on average, as discussed in the IMF book \"Well Spent: How Strong Infrastructure Governance Can End Waste in Public Investment.\""
    },
    {
      "heading": "Catalyzing private investment",
      "content": "- Rationale:\n  - Public investment can boost private investors’ confidence in the recovery and induce additional private investment by signaling government commitment to sustainable growth.\n- Direct channels:\n  - Investments in digital communications, electrification, or transportation infrastructure allow new businesses to emerge.\n  - Investments in healthcare and other social services are associated with sizable increases in private investment at the one-year horizon.\n- Caveats:\n  - Fiscal multipliers may be muted if some jobs cannot be performed safely during the pandemic or if firms exit the crisis with less financial capacity to invest.\n- Overall conclusion:\n  - Public investment is a powerful element of stimulus packages to limit the economic fallout from the pandemic and to lay the foundation for a more resilient economy by investing in job-rich, highly productive, and greener activities.\n\nSource: Public Investment for the Recovery — Vitor Gaspar, Paolo Mauro, Catherine Pattillo, Raphael Espinoza; October 5, 2020.\n\n---\n\n\n References\n\n- Fiscal Monitor\n- Well Spent: How Strong Infrastructure Governance Can End Waste in Public Investment\n\nSource: https://www.imf.org/en/blogs/articles/2020/10/05/blog-public-investment-for-the-recovery"
    }
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    "[Markdown version](/en/blogs/articles/2020/10/05/blog-public-investment-for-the-recovery/index.md)",
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    "Authors: Vitor Gaspar, Paolo Mauro, Catherine Pattillo, Raphael Espinoza",
    "Published: October 5, 2020",
    "Publication: \"Public Investment for the Recovery\" by Vitor Gaspar, Paolo Mauro, Catherine Pattillo, Raphael Espinoza; October 5, 2020.",
    "Context: Governments responding to COVID-19 must address the health emergency and provide lifelines while preparing economies for the post-COVID-19 transition, including helping people get back to work.",
    "Core proposition: Increasing public investment in advanced and emerging market economies could help revive economic activity, create jobs directly in the short term and indirectly over a longer period, and strengthen confidence in the recovery.",
    "Increasing public investment by 1 percent of GDP could:",
    "Pre-pandemic context:",
    "Immediate pandemic priorities:",
    "Financial environment:",
    "Job creation potential (per million dollars spent):",
    "Timing and implementation:",
    "Constraints:",
    "Approaches:",
    "Support for low-income countries:",
    "Climate adaptation:",
    "Risks when scaling up quickly:",
    "Governance and efficiency:",
    "Rationale:",
    "Direct channels:",
    "Caveats:",
    "Overall conclusion:",
    "[Fiscal Monitor](http://www.imf.org/fiscalmonitor)",
    "[Well Spent: How Strong Infrastructure Governance Can End Waste in Public Investment](https://blogs.imf.org/2020/09/03/how-strong-infrastructure-governance-can-end-waste-in-public-investment/)"
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