Bridging $1trn global infrastructure gap will fall to private sector, Moody’s says

Bridging the gap between global infrastructure investment needs and actual spending, estimated at $1 trillion annually, will require the mobilisation of new and existing sources of private capital, according to Moody's.

In a new report published on Wednesday, the ratings agency said credit enhancement from multi-lateral development banks (MDBs) and regulatory reforms aimed at incentivising insurers to finance infrastructure would be catalysts for further private investment in the sector, with public sector balance sheets under pressure globally.

The International Monetary Fund (IMF) has estimated that for advanced economies, investment in infrastructure during periods of low growth can increase output over the medium term by $3 for every dollar spent. The benefits to emerging market and developing economies from addressing infrastructure bottlenecks can also be significant.

Moody's therefore expects that Infrastructure investment will be a priority for policymakers. Governments are responsible for the policy framework and overarching strategy for infrastructure procurement, shaping the environment in which market participants operate.

The agency added that recent initiatives will increase “investable opportunities” and open up new sources of capital for infrastructure investment.

“MDB's have established project preparation facilities to improve the quality of infrastructure developments, and are actively exploring forms of credit enhancement to tap new sources of private capital for infrastructure,” said Andrew Davison, Moody's Senior Vice President and author of the report.

"Infrastructure assets and services are being delivered successfully under a variety of business models and financing arrangements, including through public-private partnerships. We believe that technical assistance and credit enhancement from MDBs, as well as regulatory changes that incentivise insurers to invest in infrastructure, will play a growing role."

In Europe over 2012-14, Moody’s estimates that total capital expenditure by its-rated infrastructure corporates was more than 4x the capital value of infrastructure project finance investments in the region.