Western Balkan countries need to close public infrastructure gaps - IMF

Western Balkan countries need to close public infrastructure gaps - IMF IMF Author (bnm) License: all rights reserved.

BELGRADE (Serbia), February 9 (SeeNews) - The International Monetary Fund (IMF) recommended that the Western Balkan countries mobilise domestic resources to create fiscal room for critical infrastructure spending and co-financing of projects in order to overcome its large public infrastructure deficiencies.

Compared with the EU average, Western Balkan countries exhibit low railway and motorway densities and weak airport capacity and utilisation, installed capacity for power generation is also very weak, while broadband internet connections are scarce, the fund said in a paper named "Public infrastructure in the Western Balkans: A highway to higher income," issued on Thursday.

Under the most favourable scenario, full implementation of regional connectivity projects, already included in the countries’ project pipelines, would imply a long-term improvement in the level of real GDP per capita in the range of 3.5 percentage
points above and beyond what would have been achieved under the steady state.

Therefore, public investment management frameworks need to be significantly bolstered to improve the efficiency of public spending on infrastructure in the region, the IMF said. "Strengthened project implementation would help better utilise available fiscal space and improve absorption of available donor financing."

The overall cost of the top priority projects varies substantially across countries, from about 7% of GDP in Serbia to 20% of GDP in Bosnia and Herzegovina. Montenegro, with its pipeline of 70% of GDP worth of projects, is a clear outlier, as the country’s project pipeline includes projects (mainly roads) that are unlikely to be economically viable or fiscally sustainable, the IMF said. 

Concerted efforts are needed to strengthen public investment management frameworks to improve planning, allocation, and implementation capacities and therefore ultimately reduce waste and improve the efficiency of investments. This will allow the region to fully exploit the crowding in of private investments, maximise efficiency gains related to public-private partnership (PPP) investments, and better leverage available financial support from partners.

"Prioritisation of infrastructure projects needs to be shielded from politicisation. Establishing a defined infrastructure pipeline based on quantifiable public goals is key to contain the continuing desire of politicians to pick projects that benefit vested interests or can be easily touted in the next election," the IMF said. 

Scaling up public infrastructure needs to be financed largely by external sources, leveraging stronger regional coordination. This calls for a dominant role for official donor and multilateral financing on concessional terms. This will free scarce domestic resources for private sector investments, improve project selection and implementation, and mitigate debt sustainability risks. 

Public infrastructure investments need to be complemented by strong policies and renewed reform momentum. They should not be seen as a substitute for a wide range of structural reforms and prudent macro-financial policies needed to stimulate growth and speed up income convergence, the IMF said.

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