Involving the private sector and PPPs in financing public investments: some opportunities and challenges

Given the paucity of public resources, it is important to consider relying on the private sector for financing public investments and infrastructure. There are considerable expectations concerning Public–Private-Partnerships (PPPs) in supplementing public resources, but also risk sharing with the public sector. However, these contracts are subject to abuse, given asymmetric information, and game-play across levels of government that lead to the risks being borne by the central government or subsequent administrations. Specialized agencies can play a useful role in supporting subnational governments with the complex contracting arrangements needed for PPPs. We see that strengthened Public Financial Management is needed, to track the build-up of liabilities at the subnational level, and also own-source revenues to ensure accountability. Uncertainty, including with climate change, may require different arrangements—and the options are addressed in a subsequent paper Ahmad, Vinella and Xiao (2017), but the risk-sharing aspects of PPPs may be relevant in many cases.