Infrastructure financing has challenges, and opportunities

THE World Bank-Singapore Infrastructure Finance Summit held here last week highlighted many of the challenges facing the region in financing infrastructural development, without which sustained growth would be impossible.

The needs are huge and glaring: Country after country in Asia needs more roads, utilities, urban transportation facilities, ports, airports, irrigation systems and more. The Asian Development Bank (ADB) has estimated that in total, Asian economies need an eye-popping US$8 trillion of infrastructure investment between 2010 and 2020, or about 4 per cent of the region's gross domestic product per year. This far exceeds the capacity of not only government budgets but also existing multilateral financial institutions such as the World Bank, the ADB and the newly created Asian Infrastructure Development Bank. It is also well beyond the capacity and risk appetite of commercial banks - which are typically active only in early stages of infrastructure financing. In fact, faced with tighter capital requirements, banks need so get some of their infrastructure exposure off their books.

As Deputy Prime Minister Tharman Shanmugaratnam pointed out in his keynote address at the summit, capital markets - and particularly institutional investors such as pension funds, sovereign wealth funds and insurance companies - need to play a much larger role. He noted that at the moment, barely 3 per cent of the total US$57 trillion in assets under management globally is allocated to infrastructure investment. Of this, less than 0.2 per cent goes to infrastructure debt.