IMF urges infrastructure investment at low interest rate to drive post-COVID growth
Reuters October 6, 2020
The International Monetary Fund on Monday said member governments should seize a low interest rate opportunity to invest in infrastructure to drive recovery from the coronavirus pandemic and a shift toward greener energy.
The IMF said in chapters from it fiscal monitor that its research shows public investment in infrastructure, including investments in health care systems, digital infrastructure and addressing climate change can pay back more than two to one in economic growth within two years.
The full Fiscal Monitor will be presented at the IMF and World Bank annual meetings, which get underway next week and will provide an updated assessment of the pandemic's effect on the global economy. The IMF said increasing public investment by 1% of GDP in advanced and developing economies would grow their GDP by 2.7%, creating 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects.
"Even before the pandemic, global investment had been weak for over a decade, despite crumbling roads and bridges in some advanced economies and massive infrastructure needs for transportation, clean water, sanitation, and more in most emerging and developing economies," IMF Fiscal Affairs Director Vitor Gaspar said in a blog post.
He added that "low interest rates globally also signal that the time is right to invest" despite the Fund's frequent warnings about a massive buildup of debt in developing countries. Some countries with tighter financing conditions will have to take a more gradual approach to scaling up infrastructure development, but the improved growth prospects could pay off if projects are well-managed and set the stage for future growth.
"Investment is now urgently required in sectors critical to controlling the pandemic, such as health care, schools, safe buildings, safe transportation, and digital infrastructure," The IMF said in its report.
The Fund said public investment in infrastructure is feasible and can be delivered quickly if governments invest in maintenance of infrastructure, review and restart projects that were shelved at the start of the pandemic, speed up projects in the pipeline and plan immediately for a post-pandemic investments.
It said official aid for adaptation to climate change would pay back more than 100% in growth, and there is a need to double a currently planned $10 billion to adapt countries to climate change to around $25 billion.