BRIEF February 2, 2018

Infrastructure Finance

Overview:

Infrastructure development lies at the nexus of economic growth, productive investment, job creation, and poverty reduction. Financing the huge investment gaps in Emerging Market Economies (EMEs) – an estimated $1.3 trillion per year – is paramount to attaining the SDGs. This priority keeps being stressed by the G20, along with an explicit mandate for the MDBs. In the past, government budgets, banks and international donors were the traditional funding sources in most EMEs (although not always banks in some LICs).

On one hand, the infrastructure needs exceed sources of traditional funding. On the other hand, the traditional sources may even contract due to reduced fiscal and donor resources as well as tighter international banking regulations. The international development community acknowledges the increasing need for enhanced participation of the private sector, especially as long-term financier, in infrastructure projects. In light of the Maximizing Financing for Development (MFD) strategy, the goal is to deliver infrastructure projects by reducing the reliance on public funds (i.e. taxpayers’ money) – either for immediate financing or future repayment – and mobilizing greater amount of commercial financing. One key metric of success under the strategy would be the MFD multiplier (defined as the ratio of commercial finance to public funds) in the context of infrastructure finance. 

Our Infrastructure Finance business line works on expanding infrastructure finance markets across economies, leveraging private funding from institutional investors and reducing the rising infrastructure finance gaps in EMEs.

What We Do:

We assist client countries in addressing the rising demand for infrastructure through various levels of intervention: advisory services on policies, regulations and financial market reforms supportive of infrastructure financing (linking our advisory services, when appropriate, to WBG lending, guarantees and treasury operations to catalyze private sector-led infrastructure development), partnering with national development banks and infrastructure agencies to strengthen institutional capacity and develop investment vehicles and credit enhancement instruments to crowd in commercial investors, and driving synergies with different WBG practices and cross-cutting solution areas that mobilize both advisory and financing services across different infrastructure sectors of along the different phases of the infrastructure project cycle.

We offer a range of products and services to our client countries:

i)                   Upstream Technical Advisory Services: In collaboration with the PPP cross-cutting solution area and other sector-specific general practices, we provide technical advisory services on the following areas: PPP regulatory and institutional frameworks to ensure project bankability, effective risk-allocation policies, early bankability review and prioritization of project pipeline, and government transaction advisory.

ii)                 Downstream Technical Assistance and Financial Intervention Instruments, including:

a.      Capital markets solutions: Capital markets framework for long-term finance, financial innovations and regulations to mobilize institutional investors (including credit enhancement and other risk-sharing instruments) both through debt and equity markets;

b.      Banking solutions: Banking sector policies and prudential regulations, role of development banks in crowding in the private sector, risk management & hedging instruments, and use of Islamic finance;

c.       Guarantee programs/facilities: Capacity development of national development banks for catalytic role and/or supporting design and implementation of standalone facilities;

d.      Tailored financing solutions for LICs: Optimization of blended financing and credit enhancements to crowd in private investments;

e.       WBG loans and guarantees: Supporting interventions that leverage commercial investors: credit enhancements for obligators, offtakers and issuers; risk-sharing, refinancing, pooled financing vehicles, investment funds, green finance schemes, and so on.

iii)               Country Diagnostics and Other Building Blocks of Infrastructure Finance: We work on country diagnostics (including through the FSAPs), elaboration of strategic roadmaps and action plan, and development of Monitoring & Evaluation (M&E) frameworks, among others. 

Last Updated: Feb 02, 2018


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