# **4 Discussion and Policy Implications**

Drawing on a variety of new and existing data sources, this paper has aimed to shed light on the patterns and trends of public spending on infrastructure in low- and middle-income countries.

Overall, public expenditure on infrastructure in the developing world was found to be low and declining, reaching its lowest levels since 2010 at just below 1 percent of GDP in 2018. Infrastructure accounts for a low and stable share of no more than 5 percent of total government expenditure. However, investment in infrastructure accounts for a somewhat higher share of 15 percent of overall public investment; albeit reaching higher shares of around 30 percent for some countries during limited time windows.

There is evidence that low-income countries, despite their lower overall levels of public expenditure, were inclined to devote significantly higher shares of public expenditure and public investment to infrastructure at least up until 2015, but with a marked decline subsequently. Over the period 2010-18, there has been a marked sectoral shift in public expenditure for infrastructure, with spending on roads halving over this period even as spending on electricity has doubled.

It is striking that these numbers are much lower than previous high-level aggregated estimates of developing country infrastructure spending presented in Fay et al. (2019). However, there are important differences in the methodology that can adequately explain the differences. First, this analysis is limited to actual spending data and does not rely on any estimates involving assumptions or extrapolations. Second, the current data set does not include any of the known high infrastructure spending countries such as India and China, which due to their large size tend to inflate global estimates of infrastructure spending. In that sense, the current research provides a higher resolution more accurate understanding of spending patterns in the developing world outside the largest middle-income countries.

Low levels of public expenditure on infrastructure are further exacerbated by low budget execution ratios. Comparing budget allocations to executed amounts shows that countries manage to execute 94 percent of the budget allocation for capital projects in roads but only 75 percent in power. There are marked differences according to income group, with middle-income countries (executing 99 percent of budget for roads and 82 percent for power), doing substantially better than their low-income counterparts (executing just 64 percent in roads and 39 percent in power).

When it comes to roads expenditure, the main sources of funding are government budgets, and for some countries Road Fund resources and official financing from China, with the private sector and donors contributing relatively modest amounts. Relatively few countries have been able to tap PPP resources for the road sector, and even where they have, these have typically accounted for no more than 5-10 percent of total road investment.

The vast majority of countries were found to exhibit a strong capital bias, allocating about six times as much expenditure to construction of new roads as to preservation of existing roads; a 50:50 balance would be closer to recommended norms. Countries adopting Road Funds were found to allocate substantially more to road maintenance on average than those without – nine times as much on a per kilometer basis – and this is particularly remarkable when their relatively low level of income is taken into account. Countries with Road Funds were also less likely to exhibit capital bias, or at least exhibit less pronounced capital bias, than those without. However, even then, the presence of a Road Fund did not necessarily seem to guarantee that 29