The failure of Silicon Valley Bank and subsequent turmoil in the banking sector clearly signal some fragility in the global economy and global financial system.
In such moments, it has been common for the infrastructure crisis to be swept aside or for infrastructure to be used as a short-term fix, with money poured into small, ‘shovel-ready’ projects that deliver economic benefits but little else.
We know better now. A crisis is not the time to become more risk averse about investing in infrastructure, and specifically ambitious infrastructure that contributes to achieving the Sustainable Development Goals. Although it is a truism, infrastructure really is the backbone of societies and economies, and the economic benefits of sustainable infrastructure development during crises are well documented.
By leaning into multilateral cooperation and banking reforms, we will emerge from the present crisis with infrastructure that actually does what we need it to do and enables the societies and economies we are trying to build.
We should amp up, not pause, investment in ambitious infrastructure that helps achieve the SDGs
The need for sustainable infrastructure (infrastructure that helps achieve the SDGs) is greater than ever.
Inequality has increased since the pandemic. The UN reports the income divide between nations has grown for the first time in a generation, and the pandemic pushed the achievement of gender equity back by an entire generation. When the GI Hub analysed infrastructure stimulus in G20 countries last year, we found 47% targeted equality-related benefits like social cohesion, inclusive mobility, and affordability and access to services.
Resilience is another problem. Globally, infrastructure is not resilient or adaptive enough to climate and other threats. Physical risks to infrastructure are increasing, and cyberattacks are also on the rise.
On the environment, infrastructure continues to be responsible for the great majority of greenhouse gas emissions, and this week’s IPCC report shows how much needs to be done, quickly. Investments in green infrastructure by both the public sector (watch this space for forthcoming GI Hub data) and private sector will need to scale.
Sustainable infrastructure investment yields even greater benefits in times of crisis
The economic benefits of sustainable infrastructure development during crises are well documented. As recently as 2020, at the height of the COVID-19 crisis, the GI Hub and Cambridge Economic Policy Associates found that public investment is the most effective fiscal measure governments can apply to increase economic output over the medium term, delivering about $1.50 for every $1 invested within two to five years – and $1.60 for every $1 invested during recessionary periods. We also found that public investment is less likely in times of recession to ‘crowd out’ private economic activity.
To make investment flow, lean into multilateral efforts and reforms
At the most recent meetings of the G20 Finance Ministers and Central Bank Governors in India, we discussed the reforms proposed to improve the ability of the World Bank and other multilateral development banks to increase their lending in support of the SDGs and Paris Climate Agreement targets through the implementation of the Capital Adequacy Frameworks report recommendations. Given the huge role MDBs play in sustainable infrastructure development (especially in middle and low-income countries where the most investment is needed), this discussion and the actions that follow – reinforced by strong new leadership at the World Bank – will likely change the game.
Simultaneously, we need to ensure the right enabling environment exists to support these financing actions and others. Governments and regulators are currently being incredibly cautious in order to preserve the global financial safety net and avoid any debt traps. This prudent stance would be complemented, not compromised, by governments continuing to invest public funds while encouraging private investors to invest and leverage the inflation-hedging potential of infrastructure.
For their part, regulators can accelerate infrastructure development and stop banks from retreating from infrastructure due to Basel III and IV enforcement, by considering reforms to the treatment of infrastructure as an asset class. This may be a tough ask in today’s context, but the current treatment is already curbing private sector financing, including shrinking private-sector loans that directly impact middle- and low-income countries. Following recommendations on this topic by the G20, the GI Hub has convened a coalition of banks and other stakeholders to advance reforms, with proposals to be presented to the G20 Presidency and regulators.
All these actions are made more effective by multilateral cooperation. Via the G20 and other forums, we can act together effectively on complex challenges. Even if we are in crisis (or polycrisis/permacrisis), we have tools in our collective toolbox to realise the outcomes we need. Infrastructure is one of these. It’s among the most important and impactful resources we build together – let’s not let excessive risk aversion stop it from doing the most good.
Catalyst is a new newsletter from our CEO Marie Lam-Frendo. In it, she talks about infrastructure as a catalyst for economic, social, and environmental good. To receive future issues, subscribe to the GI Hub newsletter or find Catalyst on Substack.