# **1. Introduction**

Infrastructure is key to delivering several essential services and plays a central role in achieving the United Nations’ Sustainable Development Goals.<sup>2</sup> Goal 9 explicitly articulates the importance of building resilient infrastructure by promoting innovative sustainable technologies. However, it has been shown that “infrastructure either directly or indirectly influences the attainment of _all_ of the Sustainable Development Goals (SDGs), including 72% of the targets” (Thacker et al., 2019).

Developing countries face significant infrastructure needs if they are to deliver on the 2030 policy agenda (Doumbia et al., 2019; World Bank, 2019). There have been few rigorous attempts to quantify these spending needs, and until recently most of them were based on high-level cross-country panel econometric studies (such as Fay and Yepes, 2003), or limited in scope to individual regions or sectors (for instance Foster and Briceno Garmendia, 2009). A more recent study takes a micro-economic approach to modeling individual components of infrastructure needs, which are then built-up into an aggregate picture (Rozenberg and Fay, 2019). This research finds that, when combined with good policy choices, investments of 4.5 percent of GDP, combined with operations and maintenance expenditure of 2.7 percent of GDP, will together enable low and middle-income countries to achieve infrastructure-related Sustainable Development Goals and stay on track to full decarbonization by the second half of the century. These headline estimates can be further disaggregated at the sector level (see table 1).

**Table 1: Overview of estimates of infrastructure spending needs for energy and transport**

|% of GDP of LMICs|Investment needs|Operations and maintenance needs|Total expenditure needs|
|---|---|---|---|
|Energy|2.2|0.6|2.8|
|Transport|1.3|1.3|2.6|
|Water|1.0|0.8|1.8|
|Total|4.5|2.7|5.4|

Source: Derived from Rozenberg and Fay, 2019 However, evidence on how much countries are _actually_ spending on infrastructure has been sparse. This is due to limitations in the ability of traditional public finance sources – such as the IMF Government Finance Statistics – to provide sufficiently disaggregated measures to isolate infrastructure expenditure. A preliminary attempt to estimate aggregate financing flows to infrastructure in the developing world, leveraging a variety of different data sources, provided a central estimate of 4.0 percent of GDP for public investment in infrastructure by developing countries in 2011 (Fay et al., 2019). While this central estimate of spending is not far short of the projected investment needs above, the aggregate finding belies significant variation in the size of financing gaps across sectors and regions, with significant spending shortfalls estimated for Africa, Middle East, Europe and Central Asia, even as financing exceeds the minimum requirement for East Asia and Pacific.

Subsequent research has shed further light on the sectoral composition of capital spending on infrastructure projects and the extent to which it is delivered through public budgets, state-owned enterprises, or publicprivate partnerships (World Bank, 2020). This evidence, currently available for 2017 alone, suggests that 80 percent of infrastructure investment is publicly financed and two-thirds of that is channeled through

> 2 https://datatopics.worldbank.org/sdgs/sdg-goals-targets.html

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