Who will finance infrastructure investment in the years to come?

After the growth they have experienced in the last decade, Latin America and the Caribbean (LAC) find themselves presented with an opportunity to consolidate their economies and improve the quality of life of their citizens. To do this, investment in infrastructure will be fundamental.

Now the question is, who will finance this investment? According to a document from the Inter-American Development Bank (IDB), “the evolution of infrastructure investment in LAC indicates that the public sector will continue to be the main source of funds for financing infrastructure. However, given investment needs and budget restrictions, it will be necessary to increase the use of mixed sources of financing.”

The report indicates that the region is taking certain important steps along these lines, but there are still several challenges that have yet to be addressed. “In LAC, the financial system, the national public banking system, as well as regulators, have made significant steps aimed at using a variety of financial vehicles to channel private capital toward financing infrastructure projects with high socioeconomic value. However, there is still a need to support the region in realizing the potential of financial vehicles, promoting legal certainty, providing incentives for adequate risk management and promoting transparent allocation of resources.”

Moreover, the document notes that “independently of the source used to finance infrastructure construction and maintenance, this is paid with direct charges to users (tariffs) or with transfers from the public treasury. LAC, in recent years, has made a growing effort to recoup costs through direct charges to users. Among developing regions, LAC shows the greatest indicators of cost coverage for water and electricity through charges to users.”

Notwithstanding this, the IDB affirms that “the recovery of costs through tariffs must pay particular attention to problems of accessibility among lower income populations.”