Establishment of infrastructure finance bank proposed

The cash-starved government has reportedly proposed establishment of an infrastructure finance bank in partnership with international financial institutions (IFIs) to finance mega infrastructure projects in private sector.
Sources said the proposal was contained in the Infrastructure Finance Policy approved by the Economic Co-ordination Committee (ECC) of the Cabinet, chaired by Finance Minister Ishaq Dar, on January 31, 2016.
The Finance Division also acknowledged that this is being done due to the government''s limited resource mobilisation capacity.
A copy of the policy available with Business Recorder states: "The government proposes to partner with IFIs to set up an institution for financing infrastructure in the private sector in Pakistan and will contribute up to 25% of the equity through PDFL. Major equity contributions will come from IFIs and other partners. The proposed Pakistan Infrastructure Finance Bank will be run as an independent entity and will focus on financing of private sponsored infrastructure projects."
It further says that historically, inadequate investments in infrastructure sector and a lack of proper maintenance of infrastructure facilities have not allowed Pakistan to achieve its full growth potential. In order to sustain economic growth, Pakistan needs to ramp up investment in infrastructure to a level estimated at 10 per cent of GDP annually. Inadequate investment and gaps in infrastructure unless addressed, have the potential to hamper economic growth.
Pakistan''s limited resource mobilisation capability, only part of the country''s infrastructure needs, can be met by the public sector and under the 11th five-year Plan (2013-2018), infrastructure investment through Public Sector Development Plan (PSDP) is growing substantially. However, taking investment in infrastructure to 10% of GDP will require a commensurate increase in the availability of infrastructure finance from private, commercial sources, and notably increased intermediation by the domestic financial system.
The ECC was informed that various ministries and their allied agencies play a direct role in the execution of infrastructure development projects as per a defined role under the Rules of Business, 1973 and relevant statutes. The meeting was further informed that major future infrastructure projects, including energy projects, are China-Pakistan Economic Corridor (CPEC), TAPI gas pipeline, IP gas pipeline, Dasu Hydro Power project, Diamer-Bhasha Dam Project, Gwadar Nawabshah LNG Pipeline.
The meeting was further informed that apart from funding provided by federal and provincial budgets, other avenues such as multilateral and bilateral project development finance, public finance, commercial finance infrastructure as well as financing through capital markets and Islamic finance are utilised to meet the infrastructure financing needs.
The ECC was stated in the policy that under infrastructure financing instrument loans and bonds form the largest categories of infrastructure finance debt instruments, which can be structured to have long-term maturities that extend over the long-term asset because of willingness of sponsors to accept higher level of debt. Debt financing can be provided through multiple instruments with direct loans held on the balance sheets of financing institutions and registered corporate and government bonds.
Another important infrastructure instrument is equity financing. Equity finance refers to all financial resources that are provided to firms in return of an ownership interest. They are crucial in the financing of infrastructure investments as the providers of risk capital to initiate a project or refinancing. Equity market is key to infrastructure assets that seeks long-term engaged investment to sustain innovation, value creation and growth. Equity financing is especially relevant to projects that have a high risk-return profile such as new, innovative and high growth technologies.