Financing of Infrastructure – PERISA Case Study 2 on Infrastructure
In response to the global financial crisis of 2008–09, banks radically cut back on lending, especially for long-term projects. Governments worldwide, gambling on a big positive multiplier effect on aggregate demand, increased fiscal spending through focused stimulus packages on infrastructure development, and actively encouraged private participation in infrastructure (PPI).
The injection of private capital is no outright solution to the problems that beleaguer major infrastructure projects. Such problems include ineffective investments, inefficient service provision, and weak governance structures in big-ticket infrastructure assets. Nonetheless, through private-sector involvement, much of the upfront financial risk is substantially shifted away from the public sector, since private players typically contract competent advisors for independent forecasts, due diligence, and risk assessments.