Govts face 'major challenge' to fund infrastructure

POLICYMAKERS have a major challenge to ensure capital flows to the kind of infrastructure development that can promote sustainable and equitable growth, said Trade and Industry Minister Lim Hng Kiang yesterday.

He told a summit in Singapore that infrastructure spending is estimated to have to increase by about 15 per cent for countries to achieve even moderate levels of growth. "The scale of spending required is significant. It raises questions on whether and how our financial systems can deliver the required financing," he added.

Mr Lim noted that governments drive about 60 per cent of infrastructure spending around the world, but pressure on budgets may mean that current levels of outlay are no longer sustainable.

Bank lending is also being increasingly constrained by global economic factors and tighter regulations. That suggests that other sources of funding will have to be found, including more input from the private sector, which has been participating actively enough, especially in debt financing.

"There are many reasons for this, including a lack of familiarity with the asset class and bespoke nature of infrastructure projects," said Mr Lim, who was giving the opening address at the World Bank-Singapore Infrastructure Finance Summit at the InterContinental Singapore.

"Some see higher perceived political risk in Asia, and a limited range of investment instruments relating to infrastructure."

Mr Lim noted that banks could consider bringing in different types of capital at different stages as the risk profile of a project changes.

One example is the Topaz Solar Farm project in California, where banks took the construction risks and the loans were subsequently refinanced via bond issuances.

There is a need for development banks and export credit agencies to provide instruments that help offset risk, especially in the earlier phases of long-term projects. This in turn could increase private-sector participation.

Formalising public-private partnerships (PPPs) also sets a foundation for investors.

"Given the long-term nature of infrastructure investments, private investors also have to be assured that projects have been properly evaluated on economic viability, that there is strong political commitment to PPPs and that the broader legislative frameworks beyond PPPs are conducive to investments," said Mr Lim.

The minister added that Singapore also needs to develop talent in infrastructure development and financing in the private sector, which can then tap opportunities in the region.

songyuan@sph.com.sg

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