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Strategy, Policy, and Review Department
Trends and Challenges in Infrastructure Investment in Low-Income Developing Countries1
Prepared by Daniel Gurara, Vladimir Klyuev, Nkunde Mwase, Andrea Presbitero, Xin Cindy Xu, and Geoffrey Bannister
Authorized for distribution by Stefania Fabrizio
November 2017
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, IMF management, or DFID.
Abstract
This paper examines trends in infrastructure investment and its financing in low-income developing countries (LIDCs). Following an acceleration of public investment over the last 15 years, the stock of infrastructure assets increased in LIDCs, even though large gaps remain compared to emerging markets. Infrastructure in LIDCs is largely provided by the public sector; private participation is mostly channeled through Public-Private Partnerships. Grants and concessional loans are an essential source of infrastructure funding in LIDCs, while the complementary role of bank lending is still limited to a few countries. Bridging infrastructure gaps would require a broad set of actions to improve the efficiency of public spending, mobilize domestic resources and support from development partners, and crowd in the private sector.
JEL Classification: E22, H4, 018.
Keywords: Infrastructure, Public Investment, Public-Private Partnerships, Developing Countries.
Authors E-Mail Addresses: [Author’s email address]
Contents
I. Introduction
II. Infrastructure and Economic Development
III. Infrastructure Development
IV. Infrastructure Investment—Delivery and Financing
3.1 Public Investment and Saving
3.2 Public Infrastructure Investment
3.3 Private Participation in Infrastructure
3.4 Financing for Infrastructure: Official Development Finance and Cross Border Lending
V. Challenges and Way Forward
VI. Conclusions
References
Appendix
Appendix I. Public Investment Scaling-up in Ethiopia
Appendix II. Hydropower PPPs in Lao PDR
Appendix III. Solar Micro-Grids in Kenya
Figures
Figure 1. Selected Infrastructure Indicators
Figure 2. Perceptions of Infrastructure Quality
Figure 3. Public Investment: 2000-2016
Figure 4. Public Investment in LIDCs by Sub-groups
Figure 5. Public investment/GDP in LIDCs
Figure 6. Changes in Public Saving and Investment in LIDCs
Figure 7. Public Investment, Public Saving and General Government Debt in LIDCs
Figure 8. Public Investment in Infrastructure
Figure 9. Flows of PPPs to LIDCs and Elvis
Figure 10. Flows of PPPs Commitments In LIDCs, by Sector
Figure 11. Selectoral Allocation of Infrastructure ODF to LIDCs, 2006-2014
Figure 12. Cross-Border Bank Lending to LIDCs
Figure 13. Key Obstacles to Scaling Up Public Investment in Economic Infrastructure
Figure 14. PPP Amount vs. Institutional Framework
TABLES
Table 1. Infrastructures and Economic Activity
Table 2. Countries with Most PPPs, 2011–15
The authors would like to thank LIDC country teams for providing survey responses; our colleagues across the Fund as well as at the World Bank Group and the OECD for sharing data and information; Rupa Duttagupta, Chris Lane, Seán Nolan, and Zeine Zeidane for insightful comments; Rujun Joy Yin and Sibabrata Das for outstanding research assistance. This paper is part of a research project on macroeconomic policy in low-income countries supported by the U.K.’s Department for International Development (DFID).