Reviving and Reorienting Growth after the Pandemic: The Role of Local Infrastructure Investments

Abstract

As many countries are seeing the first signs of recovery from the COVID-19 pandemic, they are also shifting their policies from limiting the immediate economic impact of the pandemic on households and businesses to designing strategies that will revive long-term growth. Systemic challenges, such as climate change and growing inequality, are compounded by new ones because production and consumption patterns have been greatly modified by the pandemic, which has also led to major disruptions in global value chains. At the same time, the acceleration of the digital transformation is providing new opportunities for growth. A key success factor will be the capacity to restart and reorient infrastructure investments at a time when public finances have shifted from capital to current expenditure and private investments have been held back by the uncertain course of the pandemic. The focus of this paper is on the role that local government can play in promoting infrastructure investments and transforming the problems that the crisis has highlighted into opportunities for sustainable recovery and social inclusion. After an overview of the current infrastructure gaps and of the investment needs that the crisis has highlighted, the paper focuses on how to improve the enabling environment and the range of financial instruments that are available at subnational level. Local challenges are greater than those at national level because subnational authorities generally have more limited fiscal capacity and greater difficulty in attracting private investors. The paper also looks at specific experiences that can provide interesting insights on how to implement and finance infrastructure projects. Finally, it proposes a set of policy principles that could be taken into account to promote effective investments in local infrastructure.