The question of how scaling up public investment could affect fiscal and debt sustainability is key for numerous countries needing to fill infrastructure gaps and build resilience.
A new paper by the IMF, proposes a bottom-up approach to assess large public investments that are potentially self-financing and reflect their impact in macro-fiscal projections that underpin the IMF’s Debt Sustainability Analysis Framework.
Interestingly, the paper uses the case of energy sector investments across the Caribbean to reveal how to avoid biases against good projects that pay off over long horizons and ensure that transformative investments are not sacrificed to myopic assessments of debt sustainability risks.
The approach is applicable to any macro-critical investment for which user fees can cover financing costs and which has the potential to raise growth without crowding-out.
Read Paper here.