Sustainable Investment Holds Key to Growth in Low-Income Countries

Public investment in low-income countries needs to be raised substantially

Key goal is to build countries’ capacity to invest productively

Low-income countries also need to build capacity to borrow safely

“Sustainable Investment Scaling up in Low-Income Countries,” held November 30 at the IMF’s headquarters, brought together leading academics, researchers, private sector representatives, and policymakers to share their views on the challenges of infrastructure financing and debt management. The conference attracted a large audience, indicating the broad interest—inside and outside the IMF—in this topical issue.

The world economy presents a radically different picture than ever before, noted Min Zhu, Special Advisor to the IMF’s Managing Director, in opening the conference. For the first time, developing countries’ economic and financial situations look better than that of advanced economies, which are seeing high public sector debt, high unemployment rates, and relatively weak growth.

This more fragile outlook for advanced economies means they are less likely to provide the same level of external demand or financing for low-income countries in the foreseeable future, Zhu said. For low-income countries to sustain growth, they will thus need to unlock new sources of growth and investment financing.

“Investing in investing”

“In the next decade, low-income countries will have two big opportunities for financing major investment,” observed Oxford University’s Paul Collier, moderator of the first session. Harnessing revenues from natural resources, which are expected to increase over the next decade, is one; the second is borrowing, since many low-income countries are now in a position to take on more debt.

Low-income countries will have the opportunity to finance major investment, but they have to build the capacity to invest productively, said Paul Collier (photo: IMF).

What low-income countries lack, however, is the capacity to invest productively, Collier continued. “We have the task of what I call ‘investing in investing’—that is, building countries’ capacity for productive investment,” he said.

Jeffrey Sachs of Columbia University stressed the need to take a holistic view of the investment process and a country’s development more generally. Public sector investment, private sector investment, as well as government capacity to support investment are all essential, he said.

Sachs also called for a more significant role for...