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WBG Post-Crisis Response For Public-Private Infrastructure Projects. Washington DC December 8, 2008. Jyoti Shukla Program Manager Public Private Infrastructure Advisory Facility PPIAF. Key Messages.

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Wbg post crisis response for public private infrastructure projects l.jpg

WBG Post-Crisis ResponseFor Public-Private Infrastructure Projects

Washington DCDecember 8, 2008

Jyoti ShuklaProgram Manager Public Private Infrastructure Advisory FacilityPPIAF


Key messages l.jpg
Key Messages

  • Emerging markets severely affected, private capital flows set to decline from record levels of 2007

  • Financing of infrastructure will be strongly affected

  • WB and IFC are proposing a coordinated response



Crisis impact significant on emerging markets equity markets plunge as investors retreat l.jpg
Crisis impact significant on emerging markets Equity markets plunge as investors retreat

MSCI equity price indexes

Index (Jan. 2007 = 100)

Emerging markets

Asian Pacific ex Japan

Mature markets

Source: MSCI & IFC.


Sovereign bond spreads widened substantially l.jpg
Sovereign bond spreads widened substantially markets plunge as investors retreat

Emerging-market bond spreads

EMBI Jan 2007 – Dec 5, 2008

Basis points

Source: JPMorgan


Also corporate bond spreads l.jpg
Also corporate bond spreads markets plunge as investors retreat

Emerging-market corporate bond (CEMBI) spreads

Jan 2007 – Dec 1, 2008

Basis points

Source: JPMorgan


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…leading to a reversal of private capital flows markets plunge as investors retreat…

Bank lending, bond and equity issuance

Jan. 2004 – Oct. 2008

$ billions

(12-month moving average)

August 2007

Bank lending

Equity issuance

Bond issuance

Source: World Bank.


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…FDI inflows still resilient in 2008 markets plunge as investors retreat

FDI inflows to developing countries (US billion)

China/Brazil/Russia

Other Developing Countries

* Based on data in 25 developing countries


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But private capital flows expected to decline significantly going forward

Net private debt and equity flows to developing countries

1990-2007, projected 2008-09

$ billions

Percent

Percent of GDP

(right axis)

Source: World Bank.


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Countries where foreign banks play a dominant role going forwardwill experience significant impact on credit availability

Number of foreign banks (left axis)

Percent

Hungary 94%

Mexico 82%

Indonesia 28%

Brazil 25%

India 5%

Thailand 5%

Market share of assets (right axis)

Source: DEC Prospect Group based on data from Bankscope.


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High bank borrowing renders the infrastructure sector vulnerable to global credit crunch

Capital market financing for developing countries’ infrastructure

$ billions

Source: Dealogic


Bank lending to infrastructure has been largely to power sector l.jpg
Bank lending to infrastructure has been largely to power sector

Industry breakdown of developing-country infrastructure bank financing,

2000-2008* (percent)

* As of October


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..accounting for one-third of total international sectorbank financing

Bank lending to energy-sector and total bank lending to emerging markets

$ billions

Total bank lending

Energy sector borrowing

* As of September


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...More important impacts will come from sharp declines expected in " real economy “

Developing

countries

Real GDP (% change), 1980-2009

High-income

countries


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Preliminary estimates show up to $100 billion of projects being scaled back

  • Rapid scaling back of hedge funds

  • Private equity funds are holding back capital

  • Investors are demanding higher returns

  • Private investors focusing on largest markets, good policy frameworks, developing countries may get crowded out

  • Project delays today can have medium term implications due to long lead times


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Evidence from PPI database: Aug-Nov 08 being scaled back

  • 31 projects ($17b) reached financial closure – about 30 percent below similar level in 2007

  • 29 projects ($23b) delayed by Nov 2008.

  • 70 projects ($60b) potentially delayed if reduced financing continues


For private projects proposed ifc facility l.jpg
For private projects, proposed IFC Facility being scaled back

To act as a temporary substitute for non-available commercial financing

  • Expand resources available to increase pool of available funds

  • Investment objectives

    • Stabilize viable existing infrastructure investments at risk

    • Continue flow of new infrastructure investments


As the financial crisis becomes a fiscal crisis other effects emerge l.jpg
As the financial crisis becomes a fiscal crisis other effects emerge

  • Overall scaling back of government expenditures in infrastructure

  • O&M expenditures particularly likely to be hard hit

  • Financial assumptions on PPP projects come into question

  • Infrastructure pipeline delayed


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Three Pronged Approach effects emerge

  • Debt Facility

    • To rollover existing debt

    • Provide debt for new projects coming to market

  • Equity facility

  • Joint WBG Advisory Services


  • Advisory service component l.jpg
    Advisory Service Component effects emerge

    • Governments will need help on how to

      • Design projects considering new market realities

      • Handle crisis related stress of existing projects

    • Expected increased demand for advisory support

    • Facility to expand available funds for infrastructure advisory through IFC advisory services and WB teams funded through PPIAF


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    Complementary WB response effects emerge

    • Scaling up of IDA/IBRD lending

    • To support public sector commitments of existing projects

    • To maintain a pipeline of new projects

    • Support PPPs through increased public sector commitment/risk enhancement mechanisms/innovative instruments