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There is a growing debate how public investments in infrastructure can accommodate within fiscal stabilization and sustainability constraints. This issue has become particularly important in Latin America, where there is a perception that public investments have brunt fiscal adjustments and that there will be limited scope to meet infrastructure maintenance and investment needs. Similar concerns have also been raised particularly in other developing countries, where infrastructure investments can be a precondition for higher growth and poverty reduction, but where private investment remains limited.
Work is underway to define the criteria that shift commercially oriented public infrastructure entities off the constraints imposed by some macroeconomic targets – allegedly treating them in practice as quasi-private firms and protecting their business decision making from the swings attached to fiscal adjustments – while guaranteeing a sound fiscal risk management framework. The World Bank and the IMF have set basic principles on how to treat productive infrastructure investments in the context of fiscal adjustment programs. These principles recognize that productive expenditures should sometimes be treated differently from consumption expenditures when designing fiscal targets.
In addition, the World Bank and the IMF are piloting the risk management framework in several countries which allows governments to manage external borrowing of public infrastructure entities. The principles focus on defining the appropriate balance between productive investment and fiscal prudence; exempting commercial public enterprises from fiscal targets; and better measuring and managing public sector liabilities incurred in public-private partnerships
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