GLOBAL: Fiscal Risks from Infrastructure in an Era of High Debt Vulnerabilities: Phase II

The proposed work (Phase II) is additional work under an activity currently being funded by PPIAF. The activity is INF VPU Flagship Report, Fiscal Risks from Infrastructure in an Era of High Debt Vulnerabilities. The Flagship report will present an empirical assessment of fiscal costs and risks from power and transport infrastructure in developing countries, with a focus on hidden liabilities of state-owned Enterprises (SOEs) and public-private partnerships (PPPs).

Phase I: This phase of the PPAIF support focused on data collection and analysis around the three areas, namely on-budget expenditures, fiscal costs and risks from SOEs, and fiscal costs and risks from PPPs. Under the first area, Phase I supports the assessment of the on-budget costs of energy and transport in the countries covered by the World Bank BOOST data initiative to characterize and understand what is included in the budget and what is kept off budget. Under the second area, Phase I includes detailed financial data collection on SOEs in the power, airport, airline, rail, and road sectors and its analysis to assess the magnitude and incidence of the fiscal costs and risks from SOEs. Under the third area, Phase I supports analysis of the risks from early termination of PPPs. Additionally, Phase I of the work includes deep dives in three developing countries, including PPIAF priority countries, to capture the interlinkages among on-budget expenditures, SOEs, and PPPs. The main output of Phase I will draw on multiple background papers commissioned in the different areas from leading academic and policy experts on fiscal risks and costs from infrastructure.

Phase II: The main reason for the team’s desire to broaden the scope of the activity under Phase II is the impact of the economic crisis triggered by the Covid-19 pandemic on infrastructure SOEs and PPPs, the need to understand the levers of increased fiscal pressures they impose, and shed light on the potential governments’ responses to facilitate Building Back Better strategies. The proposed work under Phase II will (i) assess the financial performance of partially privatized SOEs vis-à-vis fully government-owned SOEs during normal times and during economic crises and the need for government support for the two types of SOEs, and (ii) assess the resilience of different PPP designs to economic crises and other exogenous shocks, such as natural disasters. The findings from these analyses will provide insight on how to design SOE support and reform programs and improve the resilience of PPPs in response to the COVID-19 crisis and minimize the fiscal risks from SOEs and PPPs going forward, thus contributing to sustainable recovery.