The mysterious acronym PFI

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I am often confused when using acronyms. In the vast terminology of public private partnerships (PPP), it’s not hard to do. For example in a lot of countries the acronym PFI, which stands for Private Finance Initiative, is used as a synonym for PPP (Public Private Partnership). While the term PFI originated in the UK, in that country it is not synonymous with PPP. PFI has a more specific meaning, relating to a special government investment policy that clearly indicates what is and what is not PFI.

While Wikipedia defines PFI as a “method to provide financial support to PPPs”—which certainly is not correct—and “as part of a wider program for privatization and deregulation”—which is not correct either—since PFI is a form of PPP and it is not a mechanism for privatization or deregulation. Having said this, I have to add that privatization or deregulation can be one of the characteristics of a specific PFI project. On the other hand, Investopedia defines PFI as a “method of providing funds for major capital investments, where private firms are contracted to complete and manage the project,” which is not a complete definition but it at least accurately describes some of the features of PFI.

These were just two examples of definitions given for PFI, and indeed when I look for the plain meaning of the words “Private Finance Initiative” I would guess that (a) this is initiated by the private sector; and (b) it is about financing, but I would be wrong. In reality PFIs are initiated by the public sector and the financing part is an important but not essential feature of a PFI. Many PFIs have been financed directly from public budgets even at the investment phase. So the expression is confusing indeed.

In the United States the expression PFI has not taken very deep roots. However, the Millennium Challenge Corporation has an interesting definition for PFI in the Private Sector Initiative Toolkit as the “Private Financing of Infrastructure,” and PFI is one form of the Private Sector Initiative (PSI) among Output Based Aid and Outsourced Management.

So, can you clear up the mystery? What is your definition of PFI?

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