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Understanding the challenges for infrastructure finance

Author

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  • Torsten Ehlers

Abstract

What is holding back infrastructure investment, even though real long-term interest rates are low and the potential supply of long-term finance is ample? The answer matters to policy makers, because infrastructure is a key determinant of the growth potential of an economy. This paper identifies some key obstacles for better and greater infrastructure finance and investment. One such obstacle is the lack of investable projects. Often, projects are not properly designed and contractual arrangements imply a distribution of risks and returns that create the wrong incentives among the various partners. The greater involvement of private investors and the design of economically rational financing structures can mitigate such problems. They also improve the efficiency and success of infrastructure projects. A pipeline of investable projects would allow large investors to commit a greater share of their financial resources to infrastructure. Tapping the vast resources of capital markets, which thus far have been underutilised, could significantly boost infrastructure finance. A greater variety of financial instruments for infrastructure finance would help to make infrastructure more attractive for a broader group of investors and would allow a better diversification of risks.

Suggested Citation

  • Torsten Ehlers, 2014. "Understanding the challenges for infrastructure finance," BIS Working Papers 454, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:454
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    References listed on IDEAS

    as
    1. Marco Sorge, 2004. "The nature of credit risk in project finance," BIS Quarterly Review, Bank for International Settlements, December.
    2. Georg Inderst, 2009. "Pension Fund Investment in Infrastructure," OECD Working Papers on Insurance and Private Pensions 32, OECD Publishing.
    3. Inderst, Georg & Stewart, Fiona, 2014. "Institutional investment in infrastructure in developing countries : introduction to potential models," Policy Research Working Paper Series 6780, The World Bank.
    4. Vivien Foster & Cecilia Briceno-Garmendia, 2010. "Africa's Infrastructure : A Time for Transformation
      [Infrastructures africaines]
      ," World Bank Publications, The World Bank, number 2692.
    5. Richard A. Brealey & Ian A. Cooper & Michel A. Habib, 1996. "Using Project Finance To Fund Infrastructure Investments," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 25-39, September.
    6. Torsten Ehlers & Frank Packer & Eli Remolona, 2014. "Infrastructure and Corporate Bond Markets in Asia," RBA Annual Conference Volume (Discontinued),in: Alexandra Heath & Matthew Read (ed.), Financial Flows and Infrastructure Financing Reserve Bank of Australia.
    7. Inderst, Georg, 2010. "Infrastructure as an asset class," EIB Papers 3/2010, European Investment Bank, Economics Department.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The infrastructure financing problem
      by noreply@blogger.com (Gulzar Natarajan) in Urbanomics on 2015-05-26 07:21:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Lieve Fransen & Gino del Bufalo & Edoardo Reviglio, 2018. "Boosting Investment in Social Infrastructure in Europe," European Economy - Discussion Papers 2015 - 074, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. repec:gam:jecomi:v:7:y:2019:i:2:p:62-:d:242029 is not listed on IDEAS
    3. Abdelkafi, Rami & Bedoui, Houssem Eddine, 2016. "Challenges in Infrastructure Financing Through Sukuk Issuance," Policy Papers 2016-3, The Islamic Research and Teaching Institute (IRTI).
    4. Bräuning, Falk & Ivashina, Victoria, 2017. "U. S. monetary policy and emerging market credit cycles," Working Papers 17-9, Federal Reserve Bank of Boston.
    5. Valerie Cerra & Alfredo Cuevas & Carlos Góes & Izabela Karpowicz & Troy D Matheson & Issouf Samaké & Svetlana Vtyurina, 2016. "Highways to Heaven; Infrastructure Determinants and Trends in Latin America and the Caribbean," IMF Working Papers 16/185, International Monetary Fund.
    6. Wouter Thierie & Lieven Moor, 2016. "The characteristics of infrastructure as an investment class," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 277-297, August.
    7. repec:bis:bisqtr:1709h is not listed on IDEAS
    8. repec:eee:rensus:v:109:y:2019:i:c:p:307-320 is not listed on IDEAS

    More about this item

    Keywords

    infrastructure finance; G20 initiatives; syndicated project loans; infrastructure bonds;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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