IMF: Infrastructure investment is a key priority for the CESEE region to accelerate convergence toward the EU15

Infrastructure investment is a key priority for countries in Central, Eastern, and Southern Europe (CESEE) to accelerate the convergence of the living standards toward the level of the more advance European countries, the EU15 – says the IMF report published on 29th Sep 2020. IMF highlights the Three Seas Initiative Investment Fund (3SIIF) as an initiative with the “aim to address infrastructure needs in CESEE”.

 „I am optimistic about the prospects in this region and further convergence thanks to its geographical location, its skilled population, strong policy frameworks and positive spillovers from continued support from European Institutions” – says Kristalina Georgieva, the International Monetary Fund managing director.

The IMF report states that infrastructure investment has also gained ground as a tool to support activity in the recovery phase in the pandemic context. Over the longer term, scaled-up infrastructure investment can speed up CESEE convergence, especially when coordinated across countries.

The report estimates that closing 50% of the infrastructure gap until 2030 would require an annual investment of 3-8% of GDP. Attracting private investors should be an important step towards achieving this ambitious challenge.

To engage investors, the state development bank of Poland, Bank Gospodarstwa Krajowego (BGK), took the initiative to establish the Three Seas Initiative Investment Fund (3SIIF).

“The Three Seas Fund is the economic dimension of the Three Seas Initiative. The Fund is the most important financial undertaking in Central and Eastern Europe. We set a clear goal for the Fund – financial support for infrastructure investments in the region. Such support is especially important these days as economies struggle with the effects of the COVID pandemic. The initiator and co-founder of the Fund is the Polish development bank BGK. We established the Fund together with our partners from the Romanian development bank EximBank” – says Beata Daszyńska-Muzyczka, the 3SIIF Supervisory Board Chairperson and BGK President.

The Fund is a commercial and market-driven initiative that will grant a diversified investment and an attractive return. As an international venture, the Three Seas Fund was created under Luxembourg law, a renowned fund domicile for international investors. The Fund was founded by Poland and Romania in May 2019, joined by Estonia and Latvia in September 2020, while more countries of the region are to join the Fund by the end of 2020.

The Three Seas Fund’s main objective is to invest in transport, energy and digital infrastructure on the north-south axis in the Three Seas countries and to offset the regional development differences in the European Union.

In the report, the IMF mentions the Three Seas Initiative Infrastructure Fund as one of „the several initiatives aim to address infrastructure needs in CESEE”.

“In addition to the EU initiatives, The Three Seas Initiative (3SI), established in 2016, is a forum of the 11 CESEE-EU countries and Austria to promote cooperation for the development of cross-border infrastructure in the transport, energy, and digital sectors, improve interconnectedness from the Baltic to the Black and Adriatic Seas, and strengthen energy security. Its investment vehicle, the Three Seas Initiative Infrastructure Fund (3SIIF), supplements public and EU funds by attracting institutional investors” – the report reads.

The IMF team also state that, if done right, infrastructure investment could yield significant dividends in the region. More and better public investment can help repair the economic damage of the pandemic, raise potential output, and speed income convergence with the EU15.

„At this time of economic slowdown, its benefits could be even larger. We estimate that for each percent of GDP spent on infrastructure, the output could rise by 0,5-0,75% in the short run and by 2-2,5% in the long run” – the report reads.