International long-term private finance to developing countries has changed dramatically in the wake of the global financial crisis. Caught in “post-crisis blues”, as my World Bank colleagues Jeff Chelsky, Claire Morel and Mabruk Kabir called it in a recent Economic Premise, some traditional sources of long-term finance are strained, and alternatives have not been able to adequately compensate. Private financing of infrastructure has been particularly hurt.
Decentralization in many countries has given subnational governments certain spending responsibilities, revenue-raising authority, and the capacity to incur debt. Furthermore, rapid urbanization in developing countries is requiring large-scale infrastructure financing to help absorb influxes of rural populations. Not surprisingly, the subnational debt market in some developing countries has been going through a notable transformation.