Infrastructure can be engine of growth for world economy: Tharman
SINGAPORE – Infrastructure development can be the next sustained growth engine in the region and globally, but governments have to make sure the payoffs justify the costs, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.
SINGAPORE – Infrastructure development can be the next sustained growth engine in the region and globally, but governments have to make sure the payoffs justify the costs, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.
Speaking at the 7th World Bank-Singapore Infrastructure Finance Summit, Mr Tharman said in his opening remarks that infrastructure can support demand in the short to medium term and be a growth driver in the long term. However, it is important to avoid white elephants in the current low interest rate environment.
“It is an unfortunate fact that cost overruns on large projects are the norm. Large infrastructure projects have seen costs overrun by 20 per cent to 45 per cent on average — clearly not desirable for the public purse and a waste of resources. So we have to … assess every project for its payoffs, economic and social,” said Mr Tharman, who is also Coordinating Minister for Economic and Social Policies.
“This is also why there is some advantage in public-private partnerships, with the private sector being concerned about sustainable returns and the public sector prioritising projects based on a rigorous assessment of needs,” he added.
The McKinsey Global Institute found that the world needs to invest an average US$3.3 trillion (S$4.6 trillion) annually to support expected growth rates, with emerging economies accounting for about 60 per cent of that need. However, only US$2.5 trillion is invested every year. In Asia, rapid urbanisation has given rise to the need for US$8 trillion in infrastructure investment between 2010 and 2020, according to the Asian Development Bank.
Indonesia’s Finance Minister Sri Mulyani Indrawati, who delivered the keynote address yesterday, acknowledged that the country has under-invested in infrastructure for too long.
“When economic growth averaged about 6 per cent annually, the country only invested 3 per cent of GDP (gross domestic product) in infrastructure —definitely not enough to keep up with growth on the demand side,” she said.
“What worries me is the speed and ability to deliver infrastructure development, which is very critical in addressing the issue of poverty and inequality, not only within income groups but also across regions in Indonesia … Growth has not been fully enjoyed by all people in Indonesia. This is partly due to uneven access to basic services such as sanitation, healthcare, education and access to good jobs.”
She said the Indonesian government will provide 41 per cent of infrastructure financing needs and partner state-owned enterprises and the private sector for the remainder. Lee Yen Nee