Report: New ways needed to finance infrastructure projects

KUALA LUMPUR: Governments and multilateral development banks (MDS) need to seek innovative ways to finance infrastructure-based projects in partnership with private entities to ensure a sustainable flow of funds to meet the demand for financing.
The Ministry of Finance, in its Economic Report 2014-2015 released today, said the widening gap between demand and resources available for financing warrants a careful assessment of current methods and practices employed in infrastructure financing.
The report is issued in conjunction with the tabling of the 2015 Budget today by Prime Minister Datuk Seri Najib Abdul Razak, who is also the Finance Minister.
"Infrastructure plays a major role in ensuring a nation's growth and the welfare of its citizens. As countries strive for economic growth, the requirement for infrastructure financing will continue to expand," it said.
The World Bank estimates that the long-term investment need of developing countries in 2014 is between US$1.2 trillion and US$1.5 trillion a year while the amount of financing available is valued at US$800 billion.
The bank projects the amount of investment needed by these countries to reach US$1.8 trillion to US$2.3 trillion a year in 2020, with East Asia and Pacific alone accounting for 35-50% of the share.
The report said that MDBs have been at the forefront of infrastructure financing for decades as it correlates with their overall objectives of eradicating poverty and improving the livelihoods of the citizens of member nations.
Despite the emphasis on infrastructure financing by MDBs, the rapid growth of developing economies that comprise the bulk of MDB member nations have brought about a scenario whereby demand outstrips supply, the ministry said.
"MDBs are responding to this solution by consolidating their resources, fine tuning the financing products and seeking additional capital from their shareholders," it added.
In 2013, China announced the establishment of a new MDB, the Asian Infrastructure Investment Bank (AIIB), aimed at providing financing for infrastructure projects in Asia and expected to commence operations in 2015.
The emerging markets of Brazil, Russia, India, China and South Africa have also agreed to establish a new MDB called New Development Bank, which will be based in China, to foster economic cooperation among them and provide financing for infrastructure projects. – Bernama