Speech

Opening Remarks for the Tenth IMF Fiscal Forum

April 13, 2019

Good afternoon. I am very pleased to welcome you to the tenth annual IMF Fiscal Forum.

This year’s topic—Investing in People and Infrastructure—is timely and pressing. The need for significant public investment to lift growth has been firmly on our policy agenda for several years. Now, it has become closely identified with efforts to achieve inclusive growth and meet the UN’s Sustainable Development Goals. The challenge is to do all this in a fiscally sustainable way. In an era of constrained resources, that is no small order.

The demand for new physical infrastructure alone is massive—totaling trillions of dollars across advanced, emerging market and developing economies.

However, the needs are actually much larger, encompassing, for example, key issues like growing youth populations, rising participation of women in the labor force, and the threat of climate change. The policy response to these issues requires investments to ease infrastructure bottlenecks and spending on health care, education and training, and technology.

Without these investments, it will be impossible to meet the demands of rapidly changing economies.

Our analysis of the SDGs shows that delivering on that agenda will require substantial additional spending, with education and health representing about half of those expenditures. The other half is physical infrastructure—roads, electricity, water and sanitation, communications networks; the list is substantial. Needless to say, finding sustainable financing for these investments will be a huge challenge.

So, the demand is growing. But the reality is that public investment remains at best subdued in many countries.

Average annual general government-financed investment in advanced economies amounted to only 1.7 percent of GDP in 2011-18, nearly one-third less than in the 1990s. And while we are all very aware of the massive infrastructure investments China has made in recent years, the level of investment in emerging markets and low-income countries has also declined.

This is where the imperative to maintain fiscal sustainability becomes so important. The rise in global public debt and other demands on the public purse imply that many countries have little fiscal space for investment. Therefore, investment spending needs to be integrated within sustainable fiscal frameworks that improve the composition and efficiency of spending and that ramp up revenue.

Enhancing the efficiency of spending is crucial to reaching the SDGs. We estimate that countries can save about as much through more efficient spending on education, health care, and infrastructure as they can through tax reform.

IMF analysis indicates that, on average, countries lose about 30 percent of potential returns on their infrastructure investments due to inefficient public investment management. Countries could reduce this loss by about two-thirds with targeted reforms and more effective spending.

As many of you know, the IMF has developed the Public Investment Management Assessment framework to help with this task. This tool seeks to assess and improve governance over the full infrastructure investment cycle. This work also contributes to the G-20 quality infrastructure investment agenda, which is a cornerstone of Japan’s G20 Presidency.

It is not my intention to downplay the importance of increasing revenue. There is plenty of room for improvement. One-half of developing economies and one-third of emerging markets have low tax ratios––that is to say, below 15 percent of GDP. So, raising more domestic revenue is both desirable and feasible, especially through a medium-term strategy. The IMF tries to help its members in this area by advice on improving core revenue administration processes and designing tax policy reforms.

But strong governance––fighting corruption, establishing the rule of law, and ensuring a transparent public investment process––is critical, especially if the private sector is to be involved. The IMF and the World Bank actively support capacity development in this area for our member countries. The Fiscal Monitor that we published this week provides a rich discussion on the impact of corruption on the funding of government activities.

In conclusion, the topic of this year’s Fiscal Forum is vital to the future of inclusive growth and I am looking very much forward to the exchange of views and experiences. Thank you.