**Expenditure reallocation or revenue increases.** Absent room for fiscal stimulus, spending on public investment can also be boosted by reallocating expenditures towards growth‐ enhancing investment at the expense of expenditures that are less clearly aligned with policy priorities. Such offsetting expenditure cuts could be identified in periodic Public Expenditure Reviews that assess all government expenditures against policy priorities (for example, World Bank 2015e; 2016c‐d). Alternatively, domestic resources could be mobilized through increased revenue collection, whether by strengthening tax administrations, broadening tax bases, or raising tax rates. Revenue‐to‐GDP ratios are particularly low in South Asia and Sub‐Saharan Africa (World Bank 2015b, 2016e). Even absent hikes in tax rates, efforts to remove exemptions, tighten tax administration, and broaden tax bases could yield revenue gains that could increase resources to finance public investment projects.

**Expenditure efficiency.** Even if the resource envelope for public investment cannot be increased, public investment can be turned more effective in reaching policy priorities by strengthening expenditure efficiency (Buffie et al. 2012). EMDEs in Sub‐Saharan Africa and South Asia consistently score lowest among EMDE regions in indicators of efficiency of education and health care systems (Herrera and Pang 2005). Measures can be taken both on the revenue and the expenditure side to raise public spending efficiency. On the revenue side, output‐based funding rules can strengthen incentives for ensuring greater efficiency. On the expenditure side, medium‐term budget frameworks can improve spending predictability; greater transparency of expenditures and independent spending evaluations can improve incentives to tighten efficiency; and better coordination between different levels of government can reduce duplication and inconsistencies (Mandl, Dierx, and Ilzkovitz 2008; St. Aubyn et al. 2009). The disconnect between spending and asset accumulation of infrastructure services is particularly acute when governance and fiscal institutions are weak (Keefer and Knack 2007).

Expenditure efficiency has also been prioritized by G20 policymakers (G20 2015). Policy commitments among G20 countries include efforts to strengthen cost‐benefit analyses and needs assessments, improve prioritization, increase the focus on investment quality, improve coordination of investment plans and reduce duplication, and increase transparency.

**Addressing substantial investment needs.** Regardless of the sources of financing, considerable investment is needed in all EMDE regions to meet the demands of rapid urbanization and growing activity, as well as to achieve the UNDP’s Sustainable Development Goals. In total, such investment needs amount to about 1.9‐3.1 percent of GDP per year during 2015‐30, over and above the average EMDE investment of 24 percent of GDP during 2010‐15 (UNCTAD 2014; Aschauer 1989; Fernald 1999; Czernich et al. 2011)). While specific investment priorities vary widely across regions, investments in infrastructure as well as in human capital, in particular health and education, foster long‐term prospects for inclusive growth.<sup>11</sup>

_Infrastructure investment._ Infrastructure investment gaps are sizable (World Bank 2016b, Figure 18).<sup>12</sup>

> 11 Where investment needs are large relative to public financial resources and institutions are robust, public investment can leverage private investment in public‐private partnerships (PPP). Currently, the share of the private sector in infrastructure investment is 30‐80 percent, depending on the industry, in developing countries (UNCTAD 2014). However, the share of the private sector in education and health investment in developing countries is modest at 15 and 20 percent, respectively. The challenges to designing effective PPPs are summarized in Bloomfield (2006) and Pongsiri (2002). The beneficial effects of public investment projects can be especially large when the economy’s stock of infrastructure capital is relatively low (Calderon, Moral‐ Benito, and Serven 2015).

> 12 Even in OECD countries, sizable infrastructure gaps remain to maintain, improve, and expand energy, water, and transportation infrastructure (IEA 2014; OECD 2015 a,b).

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