Poor Countries Must Strike Fine Balance in Scaling Up Investment

Countries need coherent strategy for infrastructure investment

Sound debt sustainability framework is crucial

IMF can offer budget advice, assistance with debt management strategies

Speaking ahead of an IMF-sponsored conference on the topic, Hugh Bredenkamp, Deputy Director of the IMF’s Strategy, Policy, and Review Department, discussed in an interview how countries can scale up investment in a sustainable and growth-maximizing way.

IMF Survey online: Low-income countries face massive financing needs, particularly in the area of infrastructure. What principles should guide their policies as they seek to address this problem ?

Bredenkamp: The lack of infrastructure is a key obstacle to getting faster growth for low-income countries. These needs are large: in sub-Saharan Africa alone, the World Bank has estimated total financing needs at around $93 billion a year, a third of which is currently unfunded.

In terms of principles, first, countries need to develop a coherent strategy for scaling up infrastructure that maximizes the growth potential, since that’s the ultimate objective. Second, once they have such a strategy, countries need to ensure they follow through on it. For this, they need a strong institutional framework that keeps implementation in line with the strategy, ensures that bidding processes are efficient, and sees that resources are properly budgeted so that infrastructure projects can be completed and maintained. Third, countries need to secure affordable financing.

IMF Survey online: How can low-income countries scale up investment and, at the same time, avoid taking on excessive amounts of debt?

Bredenkamp: Above all, governments have to make sure that their investments pay off. In the past, countries got into debt problems by borrowing a lot, ostensibly to invest. But the investments were so inefficient and the resulting infrastructure so poorly maintained that it often did not meet the key needs of the private sector, which was driving the country’s development. So the country ended up with a lot of debt—but very little growth to show for it. It’s important to avoid these mistakes of the 1970s and 1980s. The prudent choice of investment projects and their effective implementation are key.

Countries also have to be savvy about how they finance the scaling up. They need to make sure that the fiscal revenue base is strong and growing—through tax reform and strengthened revenue mobilization—so that the public...