A new addition to the International Monetary Fund’s (IMFs) Analyze This! series of information videos focuses on infrastructure spending and its effect on societies.
AnalyzeThis! Infrastructure explains how investing in infrastructure such as roads, bridges, railways, and faster broadband internet services can help bolster economic growth and provide economic opportunities for millions of people around the globe.
The video tells viewers that an IMF review on infrastructure in 2014 found that in advanced economies an increase of 1 per cent in public infrastructure spending generated growth of up to 0.4 per cent in the same year and 1.5 per cent after four years.
AnalyzeThis! Infrastructure also explains that there are many reasons why public investment spending may not transform into growth, including inaccurately predicting future trends and infrastructure needs and poor infrastructure investment management.
Despite the risks, AnalyzeThis! Infrastructure points out that infrastructure investment is imperative and beneficial at this time because interest rates are at ‘historic lows’ making competition among borrowers more fierce. More affordable loans, AnalyzeThis! says, provides governments with the opportunity to more affordably claw back some of the backsliding that has occurred since the late 60s when infrastructure expenditure accounted for some 6 per cent of GDP. Today infrastructure spending typically equates to 4 per cent of GDP, AnalyzeThis! Infrastructure says.
Asean Infrastructure need? It’s HUGE!
In AnalyzeThis! Infrastructure, the IMF outlines specific problems poor infrastructure poses to developing and emerging markets and how they hamper social and economic development, highlighting that an average of 33 per cent of public investment is estimated to be lost to waste, corruption or bad management. Improving the efficiency of public investment is essential, AnalyzeThis! Infrastructure says, including for countries where fiscal space is limited.
Across rapidly developing Asia infrastructure needs are huge. It has been estimated that one trillion dollars ($1,000,000,000,000) is required a year over the next decade to service anticipated growth (See: What you Need to Know About Public Private Partnerships).
However, for Asean’s fastest developing economies – which are also those most in need of infrastructure investment – the conundrum is achieving sustainable and equitable growth, and infrastructure development that at the very least keeps pace with economic progress.
To ensure effectiveness in infrastructure investment the IMF says a meticulous public investment management system is essential. Policy makers must also be wary of committing themselves to costly projects, and carefully weigh the pros and cons of projects. Strong management is essential, it says.
”Infrastructure investment is essential to create growth that is sustainable in economic, social, and environmental terms. Too much spending can be costly; too little can handicap growth. Therefore, given scarce resources, policymakers need to do a delicate balancing act: assess the advantages and disadvantages of choosing a particular project, and consider investment efficiency, volatility, regulation, and coordination. This requires public investment management’, the IMFs deputy managing director, Tao Zhang, said at a conference in Sydney, Australia last year.
AnalyzeThis! Infrastructure also briefly explains how Public Private Partnerships (PPPs) can offer advantages in terms of mobilising private financial resources and promoting the efficiency use of public funds to improve great service quality. However, while PPPs are a useful financing tool for greater infrastructure investment, there needs to be strong mutual trust between authorities and the private sector for successful partnerships (See: What you Need to Know About Public Private Partnerships).
Asean to Remain Robust… Perform Strongly
At last month’s 2017 IMF-Japan International Cooperation Agency (JICA) conference in Tokyo, Japan, IMF deputy managing director Mitsuhiro Furusawa forecast Asia to continuing to “perform strongly”, with the near-term outlook “remaining strong”.
Asia’s GDP growth is estimated at 5.2 per cent last year, with the IMF expecting this to rise to 5.3 in 2017 and 2018. “Accommodative policies in the region will support domestic demand, offsetting weak export growth”, he said.
According to Mr Furusawa, there is a good indicator of global and regional trade developments in Singapore, with recent sighted activity “promising well for 2017″; in Malaysia, the Philippines, Vietnam and other emerging and developing economies, growth continues to be robust and was revised up – a trend generally driven by domestic demand”, he said.
On the negative side he noted that growth in Indonesia, where private investment has been weaker than projected, had been revised down, as too had Thailand, which was experiencing a slowdown in consumption and tourism (See: Thailand’s Zero-Baht Tour Battle a Success. Chinese Shun Thailand).
- Invest in infrastructure, IMF tells ministers (The Times)
- IMF ups forecast for Kazakhstan GDP growth (Trend News Agency)
- IMF: Government needs to increase capital spending (Irish Examiner)
- International Monetary Fund (IMF) Sees Indonesia’s GDP Growth at 4.9% (Indonesia Investments)