Public Investment Scaling-up and Debt Sustainability : The Case of Energy Sector Investments in the Caribbean

Author/Editor:

Ahmed El-Ashram

Publication Date:

June 12, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

The question of how scaling up public investment could affect fiscal and debt sustainability is key for countries needing to fill infrastructure gaps and build resilience. This paper proposes a bottom-up approach to assess large public investments that are potentially self-financing and reflect their impact in macro-fiscal projections that underpin the IMF’s Debt Sustainability Analysis Framework. Using the case of energy sector investments in Caribbean countries, the paper shows how to avoid biases against good projects that pay off over long horizons and ensure that transformative investments are not sacrificed to myopic assessments of debt sustainability risks. The approach is applicable to any macro-critical investment for which user fees can cover financing costs and which has the potential to raise growth without crowding-out.