12/03/2010 12:05 pm ET Updated May 25, 2011


For low-income countries, the absence of reliable infrastructure--roads, railways, ports, but also power supply--has become an increasingly binding constraint on growth. And we know that investment in infrastructure can raise productivity, boost growth, and help reduce poverty. But as straightforward as it sounds, getting investment decisions right is no easy feat.


Even when financing is available, there's a raft of other issues to tackle. What investments offer the biggest boost to growth? How much investment is needed and by whom? How to finance this investment without taking on too much debt?

New sources of growth and investment



1. Stronger framework for public sector investment decisions

There are several broad principles that can guide better investment decisions

  • Third, countries need 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 good revenue administration--so that the public sector can more easily afford the debts it takes on. They need to ensure that all borrowing indeed finances investment, and hence growth, not consumption. They also need a good debt management strategy to ensure that the overall amount and type of debt that the country assumes is within its capacity to repay.

2. Support for capacity building




3. A bigger role for the private sector


Tapping private sector equity financing also allows investment to be scaled up beyond what the government might be able to afford. So it is crucial that governments create the all important enabling environment--good tax system, good governance, and a sound legal framework--and give confidence that the environment will allow a proper return on private investments.


From iMFdirect blog