Scaling Up Quality Infrastructure Investment

IMF Working Papers, April 30, 2021

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South Asia needs large infrastructure investments to achieve its development goals, and public investment can also support the Covid-19 recovery.
Regression estimates that account for the quantity and quality of investment suggest that public infrastructure was a key driver of productivity growth in South Asia.
Going forward, higher public infrastructure spending can raise growth, but its benefits depend on how it is financed and managed.

Model simulations show that:
- Tax financing is more advantageous than government borrowing through financial markets because it supports growth while containing the impact on public debt.
- Concessional lending is more advantageous than government borrowing through financial markets for the same reasons.
- Private sector financing through public private partnerships (PPPs) is more advantageous than government borrowing through financial markets because it supports growth while containing the impact on public debt.
The optimal financing choice depends on:
- Available fiscal space.
- Taxation capacity.
- Implementation risks.
- Public investment efficiency.

To reap the most benefits from higher infrastructure investment, South Asian countries need to:
- Manage fiscal risks carefully, including risks from PPPs and state-owned enterprises.
- Improve public investment efficiency.
Emphasize the interaction between financing modality and project management: financing that contains public debt implications and is paired with high implementation efficiency yields greater growth benefits.

Subject: Capital budget, Expenditure, Infrastructure, National accounts, Public debt, Public financial management (PFM), Public investment spending
Keywords: Asia and Pacific, Capital budget, Caribbean, efficiency gap, Infrastructure, infrastructure investment, multiyear investment planning, PPP financing, Public investment spending, quality of investment, South Asia, tax financing

Source: "Scaling Up Quality Infrastructure Investment", IMF Working Papers 2021, 117 (April 30, 2021).