Infrastructure financing through the capital markets

As discussed in the previous chapter, the scale of investment required for infrastructure development in Asia and the Pacific is estimated to be significant, relative to current investment levels. In addition to infrastructure development, additional spending is needed to tackle poverty and hunger, provide education, healthcare services, clean energy, and address climate action and biodiversity. As the total additional investment requirements amount to $ 1.5 trillion per year on average, or about 5 per cent the region’s aggregate GDP, a key question is: how to finance such sizeable investment? Governments have conventionally been the principal investors in the infrastructure sector in developing countries worldwide, including in Asia and the Pacific (Fay and others, 2011; Hansakul and Levinger, 2016; UNCTAD, 2014), but there are competing demands for finite public funds from numerous other sectors seeking to provide public goods and services. Clearly, only a portion of the total infrastructure financing gap in Asia and the Pacific can be met by public investments alone, especially in the case of least developed countries where the financing needs are paramount (ESCAP, 2019). However, there is room for the private sector to contribute more to infrastructure financing, particularly given that infrastructure service provisioning is considered to be more commercially viable, relative to other areas of public service provision, such as health and environmental protection, which are far harder to ‘monetise’. Indeed, a greater role for private sector participation in infrastructure development and financing was formally recognized in the Addis Ababa Action Agenda (AAAA), agreed in 201519. However, for both governments and private investors to step up their investment in infrastructure, a suitable mix of financing instruments, platforms, and vehicles are needed.

Sustainable Development Goals:

Reduced Inequalities