Speech

Keynote Address at the Fifth Tokyo Fiscal Forum Mitsuhiro Furusawa, IMF Deputy Managing Director

November 19, 2019

Quality Infrastructure Investment (QII)

Good morning everyone,

On behalf of the IMF, I am very pleased to welcome you all to the 5th Tokyo Fiscal Forum and to the intensive fiscal policy discussions over the next two days.

For me, attending this forum has become a tradition which I look forward to—and I am happy to see many familiar faces around the room.

I would like to thank Japan’s Ministry of Finance and the ADBI for co-organizing this forum once again this year.

This year’s Tokyo Fiscal Forum will discuss two important topics, Quality Infrastructure Investment—QII—and population aging.

Let me focus my remarks on QII, which is today’s topic, and has been a key initiative of this year’s Japan G20 presidency.

Indeed, the QII initiative received the full support of all G20 members.

The IMF has been a strong supporter of the renewed focus on “quality” aspects of infrastructure investment.

Let me tell you why we believe this is an important policy issue.

As you would probably agree, infrastructure investment needs are large almost everywhere.

And overcoming infrastructure bottlenecks—for example poor roads, unreliable electricity networks, and sub-standard public education facilities—is a top policy priority for achieving sustainable economic growth and development.

Good quality infrastructure is also important to mitigate the impact of natural disasters and climate change.

Severe flooding and loss of life caused by recent typhoon here in Japan underline the importance of good infrastructure once more.

Yet, many countries have limited fiscal space to address competing fiscal needs in light of increasing debt.

Therefore, they cannot increase their infrastructure spending as much as they would like.

So instead of just spending more, countries have to spend better. The key to spending better is to improve the quality of infrastructure investment, so that every unit of money spent yields higher returns.

Of course, this is also important for those countries with a more favorable fiscal situation. Our analysis shows that infrastructure spending is often very inefficient.

On average, countries lose about 30 percent of potential returns on their infrastructure investments.

For example, instead of constructing 10 kilometers of roads, only about 7 kilometers get constructed with given resources.

Inefficiency can also take the form of poor functioning of key infrastructure services such as electricity which are not conducive to business activities.Therefore, it is clear that there is a lot of scope for enhancing public investment quality, and countries can expect significant benefits—more and better roads, schools and hospitals—if they focus on improving the quality of public investment spending. 

Infrastructure Governance and IMF

So what can be done? Here is the good news.

IMF analyses show that about two-thirds of the efficiency gap can be closed if countries adopt the right policies and strengthen their infrastructure governance.

“Infrastructure governance” means the institutions and frameworks for planning, allocating, and implementing infrastructure investment spending.

This includes, for example, national investment plans,

project selection processes, and project monitoring frameworks.

So, my call to you today is:

Let’s join forces to help countries close this “quality” gap!

The collective G20 commitment to quality infrastructure investment, in particular the new “G20 Principles for QII” agreed at the Osaka Summit, represents a major pillar to help guide the work going forward.

IMF contributed to this effort by preparing a note on governance, jointly with the OECD.

This note will help the new QII principles to be put into action so that they can have an impact on the ground.

We stand ready to assist our member countries in implementing the QII principles, particularly in the area of strengthening infrastructure governance.

A key tool is the IMF’s Public Investment Management Assessment, or PIMA, which we will discuss later today.

The PIMA is a framework for assessing infrastructure governance.

It underlines the strengths of the existing system but also helps identify weaknesses and sets out an action plan for addressing them.

Since 2015, the IMF has carried out PIMAs in 58 countries, covering all regions across all income levels, including 12 countries in Asia.

The PIMAs have benefitted from close coordination and participation of World Bank and ADB staff in the IMF-led assessment teams.

Our direct support to our member countries is being complemented by our analytical work.

Early next year, the IMF will publish a new book on “Infrastructure Governance: From Aspiration to Action”, which represents a culmination of our intensive work in this area. The book contains contributions from World Bank and OECD staff and represents a common and joint effort by the international community to disseminate good practices on infrastructure governance.

You will also see a short video prepared by the IMF staff after my speech. This video nicely summarizes the IMF efforts to support our members to improve their infrastructure governance.

Conclusion

To conclude, let me reiterate that the IMF stands ready to help its membership in this important area, in strong partnership with the rest of the international community.

So let’s all push forward together in strengthening infrastructure governance, moving, as the book title suggests, from aspiration to action.

I hope that this forum will help you share your experiences and develop the fiscal policy solutions needed to secure sustainable economic growth in your countries.

Thank you again for your participation.