Gerd Schwartz, Manal Fouad, Torben Hansen, and Geneviève Verdier
Public infrastructure is a key driver of inclusive economic growth and development and the reduction of inequalities. Roads, bridges, railways, airports, and electricity connect markets, facilitate production and trade, and create economic opportunities for work and education. Water and sanitation, schools and hospitals improve people’s lives, skills, and health. Also, if done right, broad-based provision of public infrastructure can support income and gender equality; help address urgent health care needs (for example, during epidemics); reduce pollution; and build resilience against climate change and natural disasters.
Public infrastructure projects are typically large and complex, with long planning, implementation, and operational periods, and as such they are inherently exposed to uncertainties and risks. However, project risks are often not well integrated in infrastructure governance frameworks and receive only moderate attention during major investment decisions. Governments’ decision making is typically shortsighted, and the long-term costs and benefits are poorly reflected in most standard budget systems. Moreover, while planning and monitoring systems may help decision makers get an impression of the long-term effects of infrastructure projects, these systems are often limited in their scope and coverage. As a result, risk management of infrastructure projects remains underdeveloped and project outcomes often deviate significantly from expectations or forecasts.
This chapter was drafted with funding support from the Korea Development Institute School Partnership Trust Fund. The authors thank Jim Brumby (Senior Advisor, World Bank), Carolina Renteria (Division Chief, IMF), Ceren Ozer (Senior Governance Specialist, World Bank), and Ian Hawkesworth (Senior Governance Specialist, World Bank) for their overall support and guidance; Isabel Rial (Senior Economist, IMF) for assistance with navigating the PIMA data set; and Jay Hyung-Kim (Advisor, World Bank) and Xingjun Ye (Research Analyst, World Bank) for useful inputs.
Chapter 3 focused on how improving infrastructure governance to produce better outcomes from existing assets is among the critical ways to close the global infrastructure gap. To improve these outcomes, countries should look to both maintain their assets—routinely preserve the quality of individual infrastructure assets and renovate them in good time and with the right amount of funding—and manage their portfolio. This chapter turns to how a life-cycle approach to the development and use of public assets is key to their management, along with optimizing balance sheets to maximize returns. Asset maintenance and management needs are particularly salient in a context of aging infrastructure, especially in some advanced economies (IMF 2014b), where large infrastructure networks were developed during the second half of the 20th century.
Governments face growing economic and fiscal liabilities because of the increased scope and scale of climate change and the disasters it induces. While the many spillover effects cause damage to private property, public infrastructure, and services such as communications, transportation, and utilities, the economic losses can well exceed the cost of replacement. A road bridge that is washed away not only drains resources to replace it and hits economic activity, but where alternative transportation routes are minimal or costly, the net private benefit to bridge users is also lost. The longer it takes to repair the bridge or provide alternative transport routes, the more the economic loss accumulates.
Examples of inefficient spending in infrastructure abound in all countries. In the United States, 11 miles of a subway tunnel lie abandoned under the streets of Cincinnati. Residents approved the subway in 1916, but cost overruns meant that it was never completed. Its bond issue was paid off in 1966—at twice the cost of the project, with interest.1 In Italy, Rome’s Vigna Clara railway station, built at a cost of $50 million to transport fans to soccer matches for the 1990 World Cup, was used only for two weeks and shut down in 1993.2 Williams (2017), analyzing a database of 14,000 development projects in Ghana, found that one-third of projects that start are never completed, wasting on average one-fifth of local government investment. In a sample of Nigerian federal government social sector projects, Rasul and Rogger (2016) found that a quarter were not completed.3 These are but a few instances of public spending that is not fully reflected in a greater stock of infrastructure assets or improvements in the delivery of public services.
Yuan Xiao, Devin D’Angelo, and Nghiã-Piotr Trong Lê
The Sustainable Development Goals (SDGs) delineate a comprehensive international agenda for sustainable development by 2030 that has been endorsed by all UN member states and build on the substantial progress achieved under the Millennium Development Goals (UN 2015). The 17 SDGs of the 2030 Agenda for Sustainable Development officially came into force on January 1, 2016. With these new goals universally applied, all countries committed to mobilize efforts aimed at ending poverty, fighting inequality, and reducing climate change over the next 15 years, while ensuring that no one is left behind (Figure 4.1).