PPP Distress and Fiscal Contingent Liabilities in South Asia

Since the early 1990s, public-private partnerships (PPPs) in infrastructure provision have beenexpanding around the world and in South Asia. Well-structured PPPs can unleash efficiency gains in theprovision of infrastructure. But PPPs create liabilities for governments, including contingent liabilities. Providinginfrastructure through PPPs is preferred to public provision if the efficiency gains offset the higher cost of privatefinancing and the unexpected public liabilities that PPPs may create. This paper attempts to assess the fiscal risksfrom contingent liabilities assumed by South Asian governments owing to their current stock of PPPs ininfrastructure. First, it analyzes the drivers of PPP distress. Second, it simulates scenarios of fiscal risks forSouth Asian governments from risky PPPs. Third, it studies specific PPP contract designs and their relationship withearly termination in South Asia to draw lessons for future PPP contract structuring.