Questions arise about the possible success of the PPP scenario

by MMC
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Mohammed Zamir
| Published: October 8, 2023 8:27:47 PM

After largely failing to dedicate 0.7% of their gross national income (GNI) to aid to developing countries for almost half a century after making this commitment, donor countries subsequently promoted blended finance ( BF) as a solution to financing development challenges.
Blending refers to the combination of public development funds (in the form of grants, technical assistance or interest compensation) with loans from private lenders. Following the adoption of the 2030 Agenda for the Sustainable Development Goals (SDGs), the OECD and the World Economic Forum (WEF) highlighted that “blended finance represents an opportunity to generate significant new capital flows towards high-impact sectors, while effectively leveraging the private sector.” expertise in identifying and executing investment strategies for development.
This also led the OECD and WEF to launch the redesigned Multi-Year Development Finance Initiative (RDFI) in 2013 to promote public-private cooperation for sustainable development. The RDFI defines BF as “the strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets.”
In this context, the RDFI promoted the FM at the Third International Conference on Financing for Development in Addis Ababa in July 2015. A pioneer of the FM also claimed that the FM had been effective in targeted development interventions and that It would complement traditional development assistance (ODA), such as grants.
The European Council also approved the FM as a development cooperation tool in 2014, followed by other donors. Similarly, multilateral development banks (MDBs) also enthusiastically supported the BF and asserted that steps would be taken to ensure “the best possible use of every grant dollar,” as an example of blended finance. The OECD, in its 2017 report, also claimed that the BF can help close the US$2.5 trillion annual investment gap for the SDGs in developing countries.
Such a positive development scenario has greatly encouraged developing countries as well as least developed countries.
However, the public has not been adequately informed about the developing dynamics. There was a lack of transparency and required accountability, which created some confusion. This has also led OXFAM-EURODAD to argue that block funding can be problematic and is not necessarily pro-poor and is primarily aimed at middle-income countries. It was also noted that the distribution of funds tended to favor private companies from donor countries, as is the case with tied aid. While relying on external private financing, the BF not only often crowded out the financial sectors of host countries, but also sometimes did not align with national development plans. There were also few opportunities for engagement through stakeholder participation, undermining national ownership.
Some economic analysts have also noted that BF tends to target investment areas where the business case is clearer, such as energy, growth, infrastructure, climate action and, to a lesser extent, l water and sanitation. BF was also much smaller for areas such as ecosystems. BF was also observed to divert aid from social programs and essential services.
Socio-economists have observed since 2018 that as a variation of “tied aid”, developed country governments have been persuaded to use their aid or foreign development assistance (ODA) budgets to promote their own national business interests, for example by providing “mixed aid”. financing” on concessional terms to secure PPP contracts or to promote the interests of these companies. On the other hand, aid recipient governments have been encouraged to replace public procurement with PPP agreements to undertake infrastructure and other projects despite the mixed results of PPPs, particularly in developed countries. themselves.
Such a scenario has forced those who need to obtain financing for the necessary infrastructure to create strong institutional capacity to manage and evaluate PPPs.
Analyst JK Sundaram has been tracking the evolving scenario in a very clinical manner, especially the emerging negative dimensions. In this context, in one of his articles, he rightly observed that “a strong institutional capacity to better deal with PPPs requires having a dedicated, competent and loyal service to the government and to the priorities and concerns of the public, in order to do what is necessary. Country governments also need to work together to ensure they are all better able to address this growing trend of state sponsorship of private business expansion, primarily from the North. However, most low-income developing countries and many middle-income developing countries do not have the capacity, let alone the capacity, to be able to effectively evaluate and respond to such proposals. Therefore, most developing countries require international technical support for the necessary accelerated capacity building.”
As an economist, he also aptly addressed a sensitive connotation. He stressed that using private consultants to fill the gap in the meantime, before national capacities are sufficiently developed, may prove attractive in the short term, but it is often forgotten that most of these consultants tend to be mainly oriented towards serving the “best payers” in the world. private sector”. We have seen such a scenario evolving in many South Asian countries, including Bangladesh.
On the other hand, some analysts in the last PPP review observed that this method of cooperation has helped promote different denotations of ways to finance and deliver infrastructure, social services and, increasingly, related projects to the climate. Proponents of this belief also claimed that PPPs would not only help solve problems other than financing, but also help improve project selection, planning, implementation and maintenance.
Some proponents of PPPs have also argued that only the private sector can provide high quality investment and high efficiency in the delivery of infrastructure and social services. It was also mentioned that private financing reduces the need for governments, facing budgetary constraints, to raise funds upfront to finance, develop and manage projects. Private sector lobbyists increasingly believe that increasing private financing is supposed to overcome the public sector’s inability to provide high-quality infrastructure and public services. This appears to be partly true, as evidenced by what is happening in many African countries. There is no doubt that many government capacities there have been diminished by decades of structural adjustment due to shrinking public finances.
However, as revealed and reaffirmed at the UNGA session, the situation has worsened because many developed and rich countries have failed to meet their commitments to contribute 0.7 percent of their income national level for official development assistance (ODA) on concessional terms. . The North has also shown itself reluctant to effectively stem illicit financial outflows, for example due to tax evasion.
At this stage, it must be remembered that the promotion of PPPs has involved many means: media and institutions, including “donor” agencies, multilateral development banks (MDBs), United Nations agencies, international consultants, transnational accounting firms and the World Economic Forum (WEF). ). The World Bank and the Asian Development Bank have long encouraged private financial investment in development, as well as more recently “blended finance” and PPPs. In 2022, the influential WEF rightly proclaimed that PPPs were essential to pandemic recovery.
However, it is also generally accepted that such promotion of private finance has implications well beyond the actually modest amount of funds raised through “blended finance” and PPPs. Almost all projects financed in this way are presented as proof that private financing must be favored, in particular by guaranteeing returns thanks to public financing. The World Bank and other MDBs devote considerable effort to advising governments on the use of PPPs, but they do not appear to have made sufficient effort to improve the quality and efficiency of publicly financed infrastructure and social services. ‘State. This is a necessity and must be implemented as a plan of action.
At this point, one must also refer to Sundaram’s assertion that over the years the World Bank Group has produced different tools – including model language for PPP contracts, which favor the interests of the private sector – often to the detriment of needy public partner governments. financing. It was suggested that the World Bank might consider taking note of what many regional development banks, such as the Asian Development Bank, the African Development Bank and the Inter-American Development Bank, are doing. These institutions have created strategic frameworks, networks and dedicated offices to support countries implementing PPPs. It helps them.
It has become clear that given the way the PPP promotion scenario works, its advocacy needs to be subject to re-examination and possible changes in laws, regulatory frameworks and policy environments at international levels , national and local. What we could probably have is more discussions among developing countries – to develop infrastructure and public service delivery – in national development plans relating to PPPs.
Such an interactive and proactive scenario is already happening in many developing countries that have enacted laws allowing PPPs and established “PPP Units” to implement PPP projects. The World Bank, International Monetary Fund (IMF) and regional development banks also work closely with private partners to provide policy guidance advising governments on how best to enable PPPs. Such an equation is also essential for Bangladesh and particularly relevant for projects related to energy, transport, water and sanitation.
We must remember that the major obstacles to securing adequate financing for both the SDG goals and climate change adaptation and mitigation measures are challenges, but they can be overcome. We must believe that discussion is knowledge in the making and that the glass is not half empty but half full. Being positive is the only course of action for developing countries.

Muhammad Zamir, former ambassador, is an analyst specializing in foreign affairs, the right to information and good governance.

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