New Financing Sources for Africa's Infrastructure Deficit

Bigger infrastructure gaps in sub-Saharan Africa than in other low-income countries

Well targeted investment in infrastructure can raise Africa's growth potential

IMF-backed programs aim at enabling more public spending for infrastructure

Policy programs in Mozambique, Rwanda, Tanzania, and Uganda allow for less concessional financing from multilateral development banks and export credit agencies; more use of public-private partnerships; and, potentially, external sovereign bond issues—as long as the new approach does not endanger fiscal and external debt sustainability.

Programs for the four countries approved since 2006 under the IMF’s Policy Support Instrument focus on macroeconomic and structural policies aimed at scaling up infrastructure spending. Policy packages for Mozambique, Rwanda, Tanzania, and Uganda reflect studies by development partners that show infrastructure spending is critical for enhancing growth and maintaining momentum toward achieving the United Nations Millennium Development Goals.

Numerous recent assessments by the IMF, multilateral development banks, and think tanks have shown how disproportionately large infrastructure gaps serve as a binding constraint to higher factor productivity and growth in low-income countries in sub-Saharan Africa. Infrastructure in the region is far less developed on average than in other low-income countries around the world, particularly in the areas of power and transportation (see table).

The World Bank has estimated that if sub-Saharan Africa’s low-income countries had an infrastructure base equivalent to a medium income country such as Korea, average per capita growth would be higher by 2.6 percentage points per year. Higher transportation, water, and power costs in Africa’s low-income countries are estimated to dampen private sector productivity by almost half —as much as crime, corruption, and limited financial market access combined.

Mozambique, Rwanda, Tanzania, and Uganda all face critical infrastructure gaps, including in the energy and transportation areas. Addressing those gaps is a central objective of the policies established under each country’s Policy Support Instrument-backed program. Each program aims at roughly maintaining or increasing higher levels of public investment spending achieved in recent years (see chart), buttressed by fiscal and structural reforms and the maintenance of a stable macroeconomic environment.

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