Developing economies should ramp up their partnerships with the private sector to finance infrastructure programs, according to an expert from the Asian Development Bank (ADB).
In an Asian Development Blog, ADB Economic Research and Regional Cooperation Department Advisor Yesim Elhan-Kayalar said this will help economies recover from the pandemic.
Elhan-Kayalar said responding to the pandemic has placed a strain on public funds and induced countries to resort to external borrowing to augment their resources.
“This approach will not be financially sustainable over an extended period. With many infrastructure projects at risk of suspension or de-prioritization to create fiscal space for Covid-19 response programs, upper middle-income country governments will have to consider other options for a sustainable path to economic recovery,” Elhan-Kayalar said.
She said charting a path toward economic recovery will mean financing large-scale public works that would generate sufficient jobs and foster private sector development for both upper and lower middle-income countries.
Elhan-Kayalar said this includes financing infrastructure programs in emerging upper middle-income countries such as the P9-trillion “Build, Build, Build” program in the Philippines.
“Diverse economies will need customized solutions to sustain their public infrastructure pipelines, generate jobs and keep private sector investors engaged in infrastructure investments,” she said.
This means ensuring that existing Public Private Partnerships (PPPs) should continue construction and operation through help from the government.
This help could be in the form of extending the concession term, credit guarantees, purchase agreements, tax holidays/deferrals, and refinancing options.
Governments should also reintroduce or issue contracts to private construction firms; support investments in the “new normal” such as urban mobility and digital infrastructure needs; and explore tax reforms and employ prudent borrowing strategies.
“During the early stages of an economy’s development, the government tends to be the primary provider and operator of public infrastructure,” Elhan-Kayalar said.
“In a more advanced economy, with open market and enabling regulatory frameworks, the private sector takes on a larger role in creating, operating, and maintaining infrastructure assets through PPPs with the government, starting with assets that have cost recovery and revenue generation potential such as toll roads and utilities. The source of infrastructure finance thus evolves in tandem with economic development,” she added.
Elhan-Kayalar added that regional alliances such as the Asean can present opportunities to explore an infrastructure-led recovery.
Asean can help in efforts to develop regional infrastructure projects, such as cross-border roads, communication or power networks.
The region can also help create economic value, spread investment risk among multiple governments and private sector investors, and provide additional employment opportunities.