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Washington DC December 8, 2008

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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Washington DC December 8, 2008

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  1. WBG Post-Crisis ResponseFor Public-Private Infrastructure Projects Washington DCDecember 8, 2008 Jyoti ShuklaProgram Manager Public Private Infrastructure Advisory FacilityPPIAF

  2. 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

  3. Until recently, strong growth in investment commitments to infrastructure – $160 bn in 2007

  4. 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.

  5. Sovereign bond spreads widened substantially Emerging-market bond spreads EMBI Jan 2007 – Dec 5, 2008 Basis points Source: JPMorgan

  6. Also corporate bond spreads Emerging-market corporate bond (CEMBI) spreads Jan 2007 – Dec 1, 2008 Basis points Source: JPMorgan

  7. …leading to a reversal of private capital flows… 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.

  8. …FDI inflows still resilient in 2008 FDI inflows to developing countries (US billion) China/Brazil/Russia Other Developing Countries * Based on data in 25 developing countries

  9. 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.

  10. Countries where foreign banks play a dominant role will 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.

  11. High bank borrowing renders the infrastructure sector vulnerable to global credit crunch Capital market financing for developing countries’ infrastructure $ billions Source: Dealogic

  12. Bank lending to infrastructure has been largely to power sector Industry breakdown of developing-country infrastructure bank financing, 2000-2008* (percent) * As of October

  13. ..accounting for one-third of total internationalbank financing Bank lending to energy-sector and total bank lending to emerging markets $ billions Total bank lending Energy sector borrowing * As of September

  14. ...More important impacts will come from sharp declines expected in " real economy “ Developing countries Real GDP (% change), 1980-2009 High-income countries

  15. 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

  16. Evidence from PPI database: Aug-Nov 08 • 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

  17. For private projects, proposed IFC Facility 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

  18. 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

  19. Three Pronged Approach • Debt Facility • To rollover existing debt • Provide debt for new projects coming to market • Equity facility • Joint WBG Advisory Services

  20. Advisory Service Component • 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

  21. Complementary WB response • 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

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