From global savings glut to financing infrastructure

Abstract

This paper proposes an institutional solution that can help unlock the flow of low yielding long-term savings towards high-return infrastructure investments. The solution is to transform public-private partnerships (PPPs) in infrastructure as well as the classic model of multilateral development banks. Instead of thinking of PPPs as bilateral contracts between a private concession operator and a government agency, we argue that they should be conceived as partnerships that also involve a development bank and long-term institutional investors as partners. We propose a new model for development banks, which is to transform them into originate-anddistribute banks for PPP infrastructure projects. The new model allows them to conserve their valuable capital and leverage their expertise and capabilities by making them available to long-term institutional investors.

To what extent can long-term investments in infrastructure reduce inequality?

“…In most developing countries, the obvious 9. Much of this section is drawn from a forthcoming paper by Arezki et al (2017). third party is a multilateral development bank, which can play not only a key monitoring role of both the service provider and the government agency, but also a fundamental role in structuring financing efficiently and providing optimal insurance or guarantees to private investors in PPPs.…”

Trends and Challenges in Infrastructure Investment in Low-Income Developing Countries

“…Even though the empirical literature indicates that infrastructure investment could deliver long-term gains, some historical experiences suggest caution. For example, in the 1980s, a wave of public-financed infrastructure investment delivered poor results in terms of short and long-run economic growth, mostly because of cost overruns, corruption and poor maintenance (Arezki et al 2017;Warner 2014). After this negative experience, and following market liberalization policies, the private sector started playing a more prominent role in financing infrastructure investment, partly through PPPs (see Hammami et al 2006).…”

“…©International Monetary Fund. Not for Redistribution participation of private long-term investors-the World Bank Global Infrastructure Facility and the EBRD Equity Participation Fund are infrastructure platforms that go in that direction (Arezki et al 2017).…”

Mobilization Effects of Multilateral Development Banks

“…In the first case, MDBs can use their leverage to influence governmental decisions and deter adverse events that would negatively affect the project outcome (Hainz and Kleimeier, 2012). Credit risk could be reduced through multilateral guarantees and the extension of the MDBs' preferred creditor status, which implies that their loans are excluded from debt reschedulings (Arezki et al, 2017; Pereira dos Santos and Kearney, 2018; Gurara et al, 2018). In addition, to overcome or mitigate information asymmetries, private creditors can be willing to co-invest in the loan syndication with an MDB to take advantage of its technical expertise, monitoring capacity and better knowledge of the country/sector (Chelsky et al, 2013;Ratha, 2001;Gurría et al, 2001).…”