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infrastructure financing

An optimist’s view on climate-smart infrastructure

Vasuki Shastry's picture


Photo: RoyBuri | Pixabay

In developed countries, we tend to take infrastructure services for granted. It’s easy to forget, when living in London, Washington, or Singapore, how much lies behind the simple act of switching on the lights. But as a young person growing up in India in the 1960s, I knew what it was like to live with rampant electricity shortages and terrible roads. It was easy to complain about it, and we did. It seemed, then, that the solution was simple: government should simply cough up the money, get to work, and build the infrastructure.
 
But there was a lot more we didn’t think about. Behind good infrastructure systems lie much more than concrete, pipes and wires. There are other building blocks as well, such as sound policy, good regulations, viable institutions, and fruitful interactions between the public and private sectors.

When (and when not) to use PPPs

Shari Spiegel's picture


Photo: torstensimon | Pixabay

In the context of strained public finances and limited borrowing capacity for developing countries, there is growing debate on the roles of public and private actors to deliver the trillions of dollars of infrastructure necessary to achieve the Sustainable Development Goals (SDGs). On one hand, high-profile public-private partnership (PPP) project failures have cast doubt about the viability of the model. On the other hand, while public authorities are ultimately responsible for the delivery of public services, deficient infrastructure services in some countries have raised concerns about the ability of the public sector to deliver on its own.

This is not a black-and-white issue. Public and private finance are complementary, with different objectives and characteristics suitable in different contexts and sectors. The recently published 2018 report of the Inter-Agency Task Force on Financing for Development, to which almost 60 agencies and international institutions have contributed, explores this debate while analyzing financing challenges of SDGs 6 (clean water and sanitation), 7 (affordable and clean energy), 11 (sustainable cities and communities), and 15 (life on land/ecosystems).

Maximizing finance for safe and resilient roads

Daniel Pulido's picture


Around the world, roads remain the dominant mode of transport and are among the most heavily-used types of infrastructure, accounting for about 80% of the distance travelled for individuals and 50% for goods.

Despite this intensive use, the funding available for road maintenance has been inadequate, leaving roads in many countries unsafe and unfit for purpose.

To make matters worse, roads are also very vulnerable to climate and disaster risk: when El Niño hit Peru in 2017, the related flooding damaged about 18% of the Peruvian road network in just one month.

It is no surprise then that roads are the sector that will require the most financing. In fact, the G20 estimates that roads account for more than half of the $15 trillion investment gap in infrastructure through 2040.

Railways are the future—so how can countries finance them?

Martha Lawrence's picture
Photo: Kavya Bhat/Flickr
As a railway expert working for the World Bank, I engage with many client countries that are looking to expand or upgrade their railway systems. Whenever someone pitches a railway investment, my first question is always, “What are your trains going to carry?” I ask this question because it is fundamental to railway financing. 

Railways are very capital intensive and increasingly need to attract financing from the private sector to be successful. That is why the World Bank recently updated its Railway Toolkit to include more information and case studies on railway financing. Here, in a nutshell are the key lessons about railway financing from this update. 

Maximizing finance for sustainable urban mobility

Daniel Pulido's picture
Photo: ITDP Africa/Flickr

The World Bank Group (WBG) is currently implementing a new approach to development finance that will help better support our poverty reduction and shared prosperity goals. This crucial effort, dubbed Maximizing Finance for Development (MFD), seeks to leverage the private sector and optimize the use of scarce public resources to finance development projects in a way that is fiscally, environmentally, and socially sustainable.
 
There are several reasons why cities and transport planners should pay close attention to the MFD approach. First, while the need for sustainable urban mobility is greater than ever before, the available financing is nowhere near sufficient—and the financing gap only grows wider when you consider the need for climate change adaptation and mitigation. At the same time, worldwide investment commitments in transport projects with private participation have fallen in the last three years and currently stand near a 10-year low. When private investment does go to transport, it tends to be largely concentrated in higher income countries and specific subsectors like ports, airports, and roads. Finally, there is a lot of private money earning low yields and waiting to be invested in good projects. The aspiration is to try to get some of that money invested in sustainable urban mobility.

2018: Are we ready to commit to building resilient infrastructure?

David Baxter's picture


Photo: Michiel van Nimwegen | Flickr Creative Commons

Just ahead of this year’s anniversary of the Indian Ocean tsunami of 2004, I visited the Tsunami Honganji Vihara site in Sri Lanka where upwards of 2,000 people died when their train was destroyed by the force of the waves. Shortly after my visit, Sri Lanka was faced with an unusually large tropical cyclone that pummeled the capital of Colombo, and caused extensive flooding, power failures and infrastructure damage. And, a few thousand miles away, Bali’s highest volcano, Mount Agung, was threatening to erupt, causing considerable anxiety in Colombo that it could trigger another tsunami event of the same magnitude of the 2004 disaster.
 
Upon my return to the United States I learned of the raging wildfires in California causing massive damages.
 
This year’s seemingly never-ending adverse weather events, exacerbated by climate change, along with adverse natural events such as earthquakes, are negatively impacting critical infrastructure globally. Some might describe 2017 as a global “annus horribilis” for adverse “force majeure” events.

Approaches to selecting infrastructure financing options

Ferdinand Pecson's picture


Photo: GotCredit| Flickr Creative Commons 

Whether an infrastructure project should be pursued through government funding, official development assistance (ODA), a Public-Private Partnership (PPP), or a hybrid, is a matter of finding the solution that best meets a government’s objective given a set of constraints and the risks presented by each option. 

Boosting access to market-based debt financing for sub-national entities

Kirti Devi's picture



Many countries are experiencing urbanization within the context of increased decentralization and fiscal adjustment. This puts sub-national entities (local governments, utilities and state-owned enterprises) in the position of being increasingly responsible for developing and financing infrastructure and providing services to meet the needs of growing populations.
 
However, decentralization in many situations is still a work in progress. And often there is a mismatch between the ability of sub-nationals to provide services, and the autonomy or authority necessary to make decisions and access financing—often leaving them dependent on national governments. Additionally, they may also contend with inadequate regulatory and policy frameworks and weak domestic financial and capital markets. 

Sub-national pooled financing: Lessons from the United States

Kirti Devi's picture

As infrastructure projects are increasingly decentralized to sub-national governments (SNGs) in many countries, policymakers are keenly interested in developing sub-national bond markets to open up access to private-sector financing. However, the transaction costs of bond issuance are still prohibitive for small SNGs.
 
Pooled financing—through regional infrastructure funds, municipal funds, or bond banks—is being explored as a solution. Yet, many questions remain: 

Financial viability support: global efforts to create commercially viable PPPs

Kalpana Seethepalli's picture
Credit: Paul Carmona 

The story of infrastructure financing revolves around varying infrastructure needs—from basic to complex, interconnected infrastructure. And as this narrative develops, it’s becoming clear that by 2030, the additional infrastructure financing required to keep up with projected global GDP growth is an estimated $57 trillion.

Because public finances are overstretched, governments must consider alternative financing models to leverage private capital into infrastructure, along with strategic use of International Financial Institutions (IFI) financing to crowd in private investments. At the same time, developments in global financial markets are fundamentally reshaping how capital is transmitted and invested around the world, including in infrastructure. A key element of attracting private sector debt and equity into infrastructure is to make the underlying transactions commercially viable through clear, transparent Financial Viability Support (FVS) mechanisms.
 
During the past few years, our Singapore-based team has spent significant time exploring the way that FVS mechanisms can make a difference in PPPs around the world. In the new issue of Partnerships IQ, we discuss in great detail how FVS is being implemented across the globe, and its potential for even greater impact. Here, we’d like to discuss FVS a little more broadly, introducing our ideas for how and where it might operate most efficiently.


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