How Much Investment Is Needed to Close the Infrastructure Gap in Latin America and the Caribbean?

The lack of adequate infrastructure in Latin America and the Caribbean is felt every time there is a power outage, a road becomes impassable, or drinking water fails to reach homes. Citizens in the region know this cost all too well: they pay it every day, through a lower quality of life and a less productive economy.

For policymakers seeking to improve citizens’ lives, those problems raise important questions: How much is the region currently investing in infrastructure? Who is making those investments? And how much more needs to be invested to close the region’s infrastructure gaps?  

An Inter-American Development Bank (IDB) study, “Eppur si muove: The Evolution of Infrastructure Gaps in LAC 2021–2026,” reveals that to make progress towards achieving its development goals in several infrastructure areas, including water and sanitation, electricity, telecommunications, and transportation, the region would need to invest, on average, 3.53% of GDP each year between 2025 and 2030. That would amount to around $1.6 trillion over five years, more than double the investment of recent years.

Between 2015 and 2023, infrastructure investment in the region averaged just 1.7% of annual GDP, less than half of what would be needed. Figure 1 shows the total investment needed to close the infrastructure gaps between 2025 and 2030.

What Types of Infrastructure Investment Are Needed?

Closing the investment gap, of course, is not just about building new roads, power grids, water systems, or telecommunication infrastructure. Of the $1.6 trillion needed through 2030, approximately $869 billion, or 54%, represents new investment, including currently inexistent connections and capacity. But the remaining 46%, or about $727 billion, would go toward maintaining the existing stock. Of that, about $223 billion would go toward maintenance and $504 billion toward asset replacement.

The distinction between these expenditures is significant. An existing road needs to be repaved; a water system needs new pipes when the old ones no longer work properly; an electrical grid requires maintenance and upgrades to continue operating. If these expenses are postponed, a gap that had already been closed may reopen. 

For that reason, closing the infrastructure gap requires doing two things at once: expanding coverage and preserving existing infrastructure. While the second task is often less visible, it is essential to ensuring the continuity and quality of services.

Not all areas need equal attention. Transportation accounts for the bulk of the required effort, with 40% of the total. Water and sanitation (25%) and electricity (24%) come next. Telecommunications lags behind, at 11%, because its coverage is already close to the targets. The remaining challenges relate primarily to quality and access for certain segments of the population.

Five Years Later, the Infrastructure Bill Is Higher

This latest IDB infrastrcuture gap estimate updates the findings of Brichetti et al. (2021), which calculated that the region would need to invest approximately 3.12% of annual GDP by 2030, and raises that figure to 3.53%, an increase of approximately 13%. 

The increase does not necessarily mean that the region’s infrastructure has deteriorated.  The gap measures how much more investment is needed to meet the 2030 targets on time and in full. If progress occurs at a slower pace than necessary, the outstanding needs are concentrated into fewer years, and therefore the required annual effort increases.

Nor is the change uniform across sectors. Investment needs in water and sanitation rose from 0.53% to 0.93% of GDP, mainly because progress toward safely managed sanitation services was slower than expected, coupled with the updating of unit costs based on new sector-specific evidence.

In transportation, by contrast, the estimated need decreased slightly, from 1.37% to 1.34% of GDP, partly due to progress made in the region and the updating of unit costs based on the latest available data. In telecommunications, the estimate remained virtually unchanged.

Between 2015 and 2023, infrastructure investment in the region trended downward. One of the main reasons was the decline in public investment of nearly 55% between 2015 and 2023, which was not fully offset by an equivalent increase in private investment. 

At first glance, this presents a paradox. If the region were investing far less than it needs to, it would be reasonable to expect infrastructure gaps to be widening rapidly. However, that is not exactly what service indicators show. Access to safe water continued to increase, electricity coverage continued to expand, and mobile networks continued to grow. The region is making progress, even though it is investing less than conventional estimates would suggest it should.

What Is the IDB Doing?

The IDB finances infrastructure projects in the region to expand and improve service delivery. It provides technical assistance and support to countries to improve the quality and efficiency of investments while ensuring these investments are planned, executed, and maintained efficiently. It works to improve information about how much is invested in infrastructure, who is investing, and how public and private flows are evolving—all essential data for designing policies to close infrastructure gaps.

The Bank is also seeking to better understand how resources are allocated, how much is allocated to maintaining existing assets, what role the public and private sectors can play, and why services have improved even with seemingly insufficient levels of investment.

Answering these questions will provide a better understanding of what is needed to close the region's infrastructure gap. 

Mobilizing $1.6 trillion over five years is a significant challenge. In addition to helping mobilize the required resources, the IDB is working to answer the critical questions that will ensure public and private investments translate into better infrastructure, services, and a higher quality of life for the region’s citizens.