Published on Let's Talk Development

Liquidity Glut, Infrastructure Finance Drought and Development Banks

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The world economy faces huge infrastructure financing needs that are not being matched on the supply side. Emerging market economies, in particular, have had to deal with international long-term private debt financing options that are less supportive of infrastructure finance.

While unconventional monetary policies in advanced countries in the aftermath of the global financial crisis have led to a global liquidity glut, some traditional sources of long-term finance have been strained and alternatives have not been able to adequately compensate. The threat of an eventual reversal of the global liquidity abundance makes even more urgent that emerging market and developing countries find new sources to tap for long-term funding, if they are to fill their infrastructure gap and keep growing. Domestic institutional investors and strengthened local long-term debt markets will be key in that regard. Official development banks can be of help to the extent that they focus on their potential “additionality.”  

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Otaviano Canuto

Executive Director, International Monetary Fund

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