ACADEMIC PROGRAM

October 2021

Macro-eco & Macro-financial landscape

5 octobre 2021

Francois BERGERE
Exec. Dir.
LTIIA

With the support of the French Ministry of Europe and Foreign Affairs
 The 5 key messages
• Private investment needed if Paris agreement & Sustainable
development goals are to be met
• Fiscal space = key consideration for governments but shouldn’t
be sole driver for PPPs
• Availability payment model (in Social infras,…) only create
short term fiscal space
• Public support remains key to scaling up Private investment
in EMDEs
• Beware of contingent liabilities!
AIFP masterclass 2021 copyright F. Bergère 2
1 The macro-eco case for Private Investment in
Infrastructure:
• Infra underpins most of the 17 SDGs
• SDGs +Paris goals Require 4 to 5 tn$ p.a of sustainable infra
Investment
But chronic undersupply:
• Infra gap = over US$2 tn p.a.
most countries (Not just in EMDES) are not investing enough
=Constraint on growth & development

=> we’re not on the trajectory

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1 The macro-eco case for Private Investing
in Infrastructure:
• Traditional sources of financing structurally
insufficient:
-Public budget & public sector debt reaching unsustainable levels
-Highly indebted countries who benefitted from debt pardon are
again in debt trouble
-Concessional finance volume by MDB/DFI limited
• Beyond financing: Project Selection, delivery & O&M often
deficient
• Need to harness Private sector Participation (PPI) to help
overcome these challenges…
• …+ extra-Infra concerns: attracting LT FDI & forex sources
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1 The macro-eco case : Impact of COVID crisis
• All sources of financing impacted, (Global crisis encompassing
all sectors/countries:
-domestic demand , purchasing power down (recession) => creditworthiness issue
-commodities crisis, exports down, including services (tourism,…) & remittances
down => Forex crunch
- Public expenses up (health expenses, compensation for lockdown,..)
• Pre-COVID Objectives even more out of reach
• WB & UN revising downwards their projections
( poverty rate, access to essential services,…)
 makes increasing & improving Infra investment
more challenging!
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 Impact of COVID-19 crisis : Africa severely affected
Impact on global activity and trade
• AfDB/IMF: Africa GDP declined for the 1st time in 50 years, by 2.1% in 2020
(+3.4% only in 2021?)
• Global poverty bouncing back:
+80m people/WB,
490m /UN, SDGs jeopardized…

Years of progress erased

=>Many countries pin their hopes on

attracting PPI
 2- The case for Private participation in Infrastructure:
• Fiscal space = most common motivation for Govts to resort to PPI, but also
the most debated!
• PPP => no need to budget resources during construction (nor to take on
additional debt for the project).
• Whether PPPs genuinely enable governments to increase spending on
infrastructure depends on:
- the nature of the project in question
- Contractual payment mode
• User-pay contracts create LT fiscal space for the government
• availability payments contracts create only ST fiscal space
• + Also impact on Accounting treatment! .
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Infrastructure, Public Goods and Social
Services
Airports
Air
Roads
Knowledge
Railway* ?
Common language Lighthouse Ports**
National Defense Stadiums* Utilities**
Public Spaces* Bridges*
Public Goods Street lighting Economic
Flood control Infrastructure
Health* Museums* Subsidized
Education* Housing
Fire service
Social infra Law
Enforcement*
Prisons
Government
buildings Food stamps
Public services Job training
Essential services

** Natural monopolies Social Services *Quasi public goods

How to pay for it: User Fees or General
Taxes?
High Some cost recovery Full cost recovery

Container Mobile
Power
Terminals Licenses
Urban Rail Distribution

Water Renewable
Treatment Power
Feasibility of cost
Telecom Backbone
recovery
Rural Telephony
(excludability)

Wastewater
Treatment
Urban Roads
Rural Roads

Low No cost recovery No cost recovery

Low Desirability of cost recovery High

(Externalities, demand-side management, poverty
and equity concerns)

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2-The case for Private sector participation
in Infrastructure:
• On Demand (Public) side: Consensus: increased PPI is required to
meet Sust.Dvpt Goals & Climate Paris accord
• On Supply (Private) side: investors need to find new diversified
outlets + show their commitment to sustainable development
• MDBs’ MFD Approach: Expand options available to countries for
financing & delivering development; MDB/DFI to catalyze PPI to
Promote good use of scarce public/concessional resources &
minimize public debt burden
• …All while delivering sustainable and affordable infrastructure
services
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2-The case for Private sector participation
• Differentiating Financing & Funding
2 different notions:
• Financing: Money required at project outset to begin
implementation, primarily for asset construction
• Funding: Money required to meet repayment
obligations and remunerate the project financiers,
namely debt and equity holders
=>Private investors/lenders are OK to finance but not
to fund !

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2-2-The case for Private sector participation
Public sector view: Financing vs Funding
ST/LT dimension
• ST is about Financing(Construction period) ; LT View => Funding (project lifecycle)
• Infra requires LT horizon , but…
Budget process =annual exercise + Politicians care about next election
=> Financing dimension often prevails
Sectoral dimension of funding
• Economic infra => User-pay
• Transport (Mobility), Energy, Telecoms/Digital, Water,…
• capacity to identify and apply cost-recovery to end-user
• Desirability/Willingness to pay for the service
• Social infra=> Gov’t-pay
• Hospitals, schools, housing, Admin buildings, Courts, prisons, Sports & cultural venues, …
• Public good nature, no identified or creditworthy/chargeable user, or political/cultural choice
IPF master ENPC Fall 2021
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What is “Commercial”,what is “Private”in Infra?
• Delivering infrastructure through private entities (PPP or
otherwise)
Private Delivery • Improves efficiency and performance through incentives &
expanded delivery capacity

• Financing infrastructure from private sources; invested

Commercial in commercially-run infrastructure
Finance • Expands fiscal space in short term
• Introduces rigor in investment decision-making

• Funding infrastructure by charging users

• Expands fiscal space in long term
User Funding • Creates opportunity for commercial finance
• Manages demand by aligning incentives 13
the Multilateral Development Banks MFD
(“Maximizing Finance for Development”)
approach

• Expand options available to clients for financing and delivering on

development goals
• Promote the judicious use of scarce public and concessional
resources …
• …to crowd-in commercial capital and minimize the public debt
burden on clients
• …while delivering sustainable and affordable infrastructure services 14
2-The case for Private sector participation
Foreign/International vs Domestic private participation?
• Infra= LT Business (Up to 50yrs or more)
• Financing should match LT horizon of
• value creation for generational equity
• But LT financing sources often rare in domestic market:
- few equity investors,
- on lending side: limited capacity for transformation by commercial
banks (possible exceptions = public sector institutions like National
Development Banks, Strategic Investment Funds or Sovereign funds);
& small domestic capital markets for bond financing, with limited
durations
• => beyond volume issues, foreign investors/lenders needed for LT financing
NB: Can also be a macro-eco objective of Govt policy to attract Long term ,
stable FDI and improve balance of payments

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 Financing private investments:

diverse Sources of de
Financing:
Public =17 % ( 0,2 +16+ 0,6)
. =US$5.3 bn
Private=59 % (23,8 + 21 + 14) =
$18.4 bn)
DFI = 24 % (10 + 14) = ($7.5 bn)

=>Public support is key in

facilitating PPPs
PPI 2020
3-Macro-financial constraints: the pitfalls
of PPPs
• Sustainability/Affordability to public finances
Budget-wise
• Govt-pay PPPs =>Direct impact over time for Govt through Availability payments
o But also for User-pay PPPs: as most concessions are not “chemically pure”
o blending public & private financing via Public subsidy or grants to CAPEX is often needed
for de-risking to attract investors and ensure affordability for end-users
o Country Risk perception pessimistic bias on EMDEs for mostly international/foreign
investors
o Consequence: EM are off-limits to many Instit. Investors. For the others, returns
requirements are too high => affordability issue for end users, private or public, resulting
in non-financially viable investment cases

NB: Sovereign risk is usually a ceiling for project risk rating but can be pierced provided
adequate contract structuring 17
3.Macro-financial constraints: the pitfalls
of PPPs
• Public support to User-pay PPPs also, through support to Investment or
operations (VGF)

and Through Guarantees of traffic, revenue, FOREX rate… ( contingent obligations)

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3.Macro-financial constraints: pitfalls of PPPs
• Available tools developed by MDBs ( IMF, WBG, Bilateral
DFIs,…) to measure and manage those risks:
- P-FRAM (Public Fiscal Risk Assessment Model ):
analytical tool to help governments assess the financial
impact and risks of PPP projects, & proactively manage
them. Used in technical assistance from the IMF &WBG, as
well as by national authorities (e.g. PPP units in finance
ministries, public companies) to better understand the
medium & LT budgetary implications of PPPs.
- PEFA (Pub Expenditures Financial Assessment )
- PIMA (Pub Invt Management Assessmt)

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3.Macro-financial constraints: pitfalls of PPPs
• Sustainability/Affordability to public finances
Accounting-wise :
• Governments need to account for & report on their financial
commitments, including those under PPPs
• 3 types of government financial accounting and reporting:
-financial statistics: may follow regional or international
standards, such as Eurostat for EU, or the IMF's Government
Finance Statistics Manual (GFSM)
-financial statements (International Public Sector
Accounting Standards ),
-budget documentation and reporting (no standards , but
guidance: IMF's Update on the Fiscal Transparency Initiative) 20
3.Macro-financial constraints: the pitfalls of PPP
• Criteria for PPP assets &liabilities to appear on
government's balance sheet vary :
• from control or regulation by Govt (IPSAS) to
bearing most of the risks & rewards (IMF GFSM).
• Even when assets/liabilities associated with a PPP are not reflected in
national accounts (so no increase in public debt), still a LT commitment of
public payments (explicit or implicit/contingent liabilities) affecting the
government’s LT fiscal position.

• Caution: IFI (+commercial banks & other lenders/investors,

rating agencies,...) take into account the direct and indirect impact
of P3 programmes in their assessment of a country's public financial
management performance.

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The End

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