Infrastructural spending by any government anywhere in the world isn only good politics, its good policy too, the fruits of which can be reaped several years down the line. And so, the Presidents initiative to ask the heads of DFIs to put their heads together and come up with plans to launch infrastructure bonds is something to welcome.
The DFIs, along with the central bank, have also been asked to devise a plan for raising money through stock exchanges for building infrastructure projects in the country on a build-operate-own-transfer (BOOT) basis or on the basis of build-operate-own (BOO). The aim is to rebuild Pakistans economy, and wade it out of the flood crisis.
Aside from replacing and adding new infrastructure, the move can also have some positive spillover effects.
For instance, if infrastructural spending comes in tandem with growth of ancillary vocational training institutes, one can hope that new skill development would thrive amongst the masses, especially in the rural and sub-urban areas, generating better employment opportunities.
Similarly, if the locals are involved possibly by means of participatory finance, the projects could get broader acceptance amongst other benefits of stakeholder engagement.
Likewise, if infrastructural spending in far-reached areas is made by building cluster-towns, each specializing in its respective domain, the move could create small, relatively more urbanized business hubs all across the country, and therefore reduce the burden of migration to the current urban centres.
There are, of course, many slips between the cup and the lip.
Initiating such public-private-partnership (PPP) projects in any developing country is a tall task, as developing the market for infrastructural bonds and other means of infrastructural financing require a lot of work from the scratch. In a country like Pakistan, mired in its own signature problems, the task becomes more uphill.
First of all there is lack of institutional arrangement. For instance the Infrastructure Project Development Facility, a body formed to facilitate and close PPP transactions, hasn been able to fulfill what it was required to do, argues Dr Salman Shah, former finance minister. The idea is to ensure centrality so that hodgepodge of activities is avoided.
Second, convincing capital markets as well as investors would be a big task, in the words of one head of DFI. Not only is there a lack of awareness of such schemes, but over the course of years, investors have mostly been diverting their savings to avenues like the National Saving Scheme.
Third is the governments precarious debt situation. Ideally, most projects would be PPP-based, but there will eventually be some projects which won be lucrative enough for private players, and hence the government will have to step in; it will have to take loans on its own book to get the project running.
Then of course, is the age-old issue of lack of transparency, which was highlighted even more in the whole rental power project façade. If risks of project defaults and of project execution aren enough of a deterrent for investors in Pakistan, the row of kickbacks and under-the-table deals adds to the risks.
The question is whether the government has the will and the skill to overcome these challenges. Considering the governments performance in recent history and non-materialization of several plans - the Presidents China visits, the textile policy - the odds seem heavily out of favour.
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NATIONAL INFRASTRUCTURE NEEDS 2010-2020*
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Estimated Investment Needs ($ million) 178,558
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Investment as a % of Total
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New Capacity 53%
Maintenance 47%
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Investment as a % of Estimated GDP
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Transport 2.65%
Electricity 2.68%
IT & communications 2.22%
Water and sanitation 0.73%
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*ADBI pre-flood estimates (2009)