## 1. Output Summary—Contemporary Periods—In Comparison with Pre-boom Periods ## Source details **Canonical URL:** [1. Output Summary—Contemporary Periods—In Comparison with Pre-boom Periods](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11181.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11181.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11181.pdf.json) --- ### I. INTRODUCTION - India plans to spend US$1 trillion in infrastructure over the next five years. - Most analysts estimate India’s medium-term trend rate of growth at or above 8 percent a year. - India’s high savings rates are expected to support strong infrastructure growth under the 12th Plan. - Under the 11th Plan (covers the period 2007-2012): - Targets for infrastructure finance have broadly been reached, partly driven by the profitability of telecommunications. - In energy, roads, and railroads, funding has either lagged targets or physical output is unlikely to reach Plan targets. - Purpose of the paper: - Examine how other countries have managed rapid infrastructure growth and financing. - Assess how infrastructure booms fit within macroeconomic frameworks. - Provide in-depth case studies of Brazil, Chile, China, and Korea, and draw lessons for India. - Structure: - Section II: Cross-country empirical study of infrastructure investment and macroeconomic variables. - Sections III–VI: Case studies of Brazil, Chile, China, and Korea. - Section VII: Broad lessons for India and conclusions. ### II. DATA, DEFINITIONS, AND METHODOLOGY - Sample and period: - Annual data, 1980 through 2009, for 105 advanced and emerging economies. - Infrastructure measures: - Electricity production measured in KWH. - Road construction measured in miles (mileage of paved roads). - Definition of booms: - Periods during which the growth rates of infrastructure capacities are at least ½ - 1 standard deviation higher than their three year moving averages. - Macroeconomic variables scaled by nominal GDP where applicable: - Fiscal deficit, current account deficit, bank credit, bond market size, central government spending, government revenue. - Data sources: - CEIC database (macroeconomic data) and BIS (bond market size data). - Methodological approach: - Focus on capacity (outputs) rather than investment flows due to cross-country comparability concerns. - Heuristic, empirical cross-country comparisons of rapid-investment periods versus slower periods. - Analysis intended as first-pass correlations rather than definitive causal identification; endogeneity noted as a challenge. ### GROWTH ASSOCIATIONS - Observed correlations: - Energy (electricity) investment booms are contemporaneous with faster growth across the sample. - Road investment booms associated with faster growth in developing countries, but not in developed economies. - Interpretation: - Rapid growth tends to coincide with increases in infrastructure investment; exception: roads in advanced economies. ### SAVINGS AND CURRENT ACCOUNT PATTERNS - Theoretical framing: current account = domestic savings − investment. - Empirical findings: - Electricity investment booms: savings rates tend to rise without significant increase in the current account deficit → implies investment during electricity booms tends not to rise by more than domestic savings. - Highway (road) construction booms: no similar rise in savings; implies financing via foreign sources or reallocation of domestic investment. ### FISCAL OUTCOMES - Empirical findings across the sample for both electricity and road investment: - No significant changes found in central government current or capital spending during booms. - Government revenue tends to outperform during boom periods relative to pre-boom periods, except: - Advanced economies during booms in electricity production (no apparent change in revenue). - Interpretation and caveats: - Governments appear able to finance infrastructure booms within existing spending envelopes, reallocating funds rather than expanding overall spending. - Caveats: possible unobserved local government financing and limited detectability if infrastructure spending is small relative to overall spending. ### FINANCIAL SECTOR IMPLICATIONS - Expectations: infrastructure booms likely require additional debt financing; manifest in deeper bond markets and/or faster bank credit growth, unless crowding out occurs. - Empirical findings: - Bond markets tend to grow relative to GDP during infrastructure booms (could reflect rapid growth rather than infrastructure per se). - Bank credit tends to rise relative to GDP during infrastructure booms, with one exception: - Road booms in developing countries do not show bank credit increases. - Interpretation: - Conditions for private finance of infrastructure tend to improve during booms. - The lack of bank credit response for road booms in developing economies may reflect weak banking capacity to finance road construction or prudential constraints. ### MAIN MACROECONOMIC FINDINGS (CROSS-COUNTRY) - Rapid economic growth and increases in infrastructure investment are strongly associated. - Sectoral financing patterns: - Energy (electricity) capacity booms tend to be financed domestically. - Road investment is less likely to be undertaken without foreign capital involvement. - Fiscal stance: - Governments generally finance infrastructure booms within existing spending envelopes. - Additional spending that occurs tends to be exceeded by higher revenues during the boom and associated growth. - Financial markets: - Private capital markets tend to deepen during periods of infrastructure investment, improving conditions for private finance. - Limitations: - Results are correlations; country experiences differ and detailed country-level analysis is required to understand mobilization of private and public capital. ### BRAZIL — CONTEXT AND RECENT POLICY - Financial sector characteristics: - Relatively sophisticated banking sector; some banks with extensive foreign operations. - Derivatives markets (particularly foreign currency) well developed. - Stock market capitalization around ¾ of GDP. - Novo Mercado listing segment requires minimum float of 25 percent and that all shares be common rather than preferred. - Pension funds relatively small, with assets of around 15 percent of GDP. - Interest rates and lending: - Interest rates generally quite high; short-term rates have fallen over the last 10 years but longer rates remain high. - Corporate spreads higher than comparator countries; most bank-funded private sector lending concentrated in the short term. - Long-term lending tends to come from BNDES. - Growth Acceleration Program (PAC), 2007: - Calls for US$251 billion in additional infrastructure and other investment over four years. - Financing: government (US$34 billion), public enterprises, and the private sector. - Measures include tax exemptions for certain capital and primary goods related to infrastructure and the eventual creation of a tax-exempt national Investment Fund. ### BNDES (Brazil’s development bank) — ROLE AND MECHANICS - Role and evolution: - Dominates long-term private sector corporate finance in Brazil. - PAC strengthened BNDES’s central role in infrastructure finance. - BNDES lending for infrastructure projects: - US$3.4 billion in 2003. - US$17.5 billion in 2008. - US$25 billion in 2009. - Activities and funding sources: - Provides loans directly, guarantees, securities underwriting, and buys bonds placed by some corporations. - Secures financing from retained earnings, some foreign funding (including bilateral and multilateral lenders), various tax and workers’ funds, and debt issued under the government. - Interest rate structure: - Base rate: taxa de juros de longo prazo (TJLP) that moves with inflation and is set by the government. - Sectoral and project-specific spreads added to TJLP. - PAC lowered sectoral spreads; sectoral spreads now generally below 2 percent and in many cases below 1 percent. - BNDES long-term lending rates generally well below the central bank overnight lending rate (SELIC). - Policy debates: - Concerns about BNDES’s dominance, taxpayer and worker fund exposure, potential crowding out of private long-term lending, and stewardship of public/pension resources. - Supporters cite stability provided during financial crises when BNDES expanded credit while private credit fell. ### BRAZIL — ELECTRICITY SECTOR - Structure and ownership: - In 2004: 59 companies in generation and 64 in distribution. - Generation concentrated in hydroelectric plants, responsible for 80 percent of generation capacity; remainder from thermal plants and two nuclear plants. - Elétrobras dominates generation, transmission, and distribution through many subsidiaries. - Elétrobras specifics: - Largest power company in Latin America. - Ownership: national government holds 52 percent of ordinary shares; minority shareholders hold 22 percent; preferred shares participation by minority shareholders at 85 percent. Remaining shares held by Brazilian public funds including pension funds. - Issued a US$1 billion bond in 2009 (first since 2005, when US$300 million issued). - S&P rating on 2009 notes: BBB- (same as Brazilian government). - Receives financing from multilateral and bilateral lenders with a state guarantee. - Involved in large hydro projects including the 11.2 GW Belo Monte project. - Financing and PAC adjustments: - Despite lack of long-term private financing at reasonable rates, substantial private sector investment in energy over last 10–15 years. - BNDES is the most common source of long-term financing; commercial banks often provide trade credit. - PAC lowered BNDES spreads: 1 percent for large hydro projects above base rate; 1.5 percent for transmission; 2 percent for distribution. - Repayment periods: 20 years for large hydroelectric projects; 12–14 years for small hydro and thermoelectric projects. - BNDES can finance up to 85 percent of hydroelectric projects and 80 percent of gas projects. ### BRAZIL — HIGHWAYS (CONCESSIONS, PPPs, FINANCING) - Historical concession program: - 1990s program transferred around 8 percent of paved federally maintained roads to about 45 private concessionaires; concentrated in richer south and southeast. - 2004 law: - Allowed joint public financing with primarily private financing and required guarantee funds for PPPs (size limited relative to annual revenues). - Expansion slowed due to legal and bureaucratic roadblocks. - Concession and PPP features: - Concessions typically give private control over toll rates; PPPs retain more public control and are used more at state level and for railroads. - Equity and FDI: - Major concessionaires list minority shareholdings domestically and issue equity in the Brazilian market. - CCR: listed on São Paulo Novo Mercado in 2002; by 2010, 38 percent of voting shares were traded. - OHL Brasil: free float less than 18 percent of ordinary shares; 60 percent subsidiary of Spanish OHL with Crédit Suisse Hedging around 20 percent. - Ecorodovias: around 26 percent free float; majority held by two large Brazilian construction companies. - Debt and maturities: - Concessionaires issue local market debt with maturities between 3 and 10 years; longer-tenor interest rates have been well above 12 percent. - Bonds include fixed-rate, interbank-linked, inflation-indexed, or floating-rate instruments; issuance sizes in the range of hundreds of millions of dollars. - BNDES incentives under PAC: - Will finance up to 70 percent of highway project cost at a spread of 1 percent (plus project-specific risk) above the TJLP. - Resulted in rapid expansion in road projects; in the first half of 2010 BNDES disbursed US$8.6 billion in road loans, more than twice the amount disbursed in the first half of (previous year implied). ### MULTILATERAL INVOLVEMENT (BRAZIL) - Interamerican Development Bank in 2009 approved a 13-year credit for US$900 million for a highway operator building a beltway near São Paulo. - World Bank often involved in financing of roads; financing for any project is limited to 50 percent of capital. - IFC: part owner of AGConcessões, an important shareholder of CCR. ### CHILE — INVESTMENT ENVIRONMENT AND FINANCIAL SECTOR - Institutional strengths: - World Economic Forum (2010) ranked Chile top in Latin America for private infrastructure financing due to macroeconomic and political stability and institutional transparency. - World Bank 2010 Doing Business: Chile ranked 49th in the world. - Financial sector indicators: - Stock market capitalization: around 144 percent of GDP (end-2009). - Pension-related assets: reached 83 percent of GDP at end-2007; fell in 2008; rebounded to 87 percent of GDP by end-2009. - Pension system features: - Privatized in 1981; workers given ‘recognition bonds’ and opened accounts in AFPs. - Contributions automatic; AFPs charge management fees and provide regular reports. - Upon retirement, regulations do not allow full lump-sum payouts; a substantial portion must be turned into an annuity indexed to inflation. - Annuity indexing requirement spurred growth in the insurance industry. ### CHILE — FINANCIAL MARKET EFFECTS OF PENSIONS - Sustained inflows into AFPs increased demand for fixed income securities matching long-term liabilities. - High historic inflation and indexed annuity requirement created large demand for inflation-indexed instruments. - Most domestic Chilean debt, and almost all debt of maturity greater than five years, is denominated in unidades de fomento (UF), an inflation-indexed unit of account. ### CHILE — ELECTRICITY SECTOR - Privatized generation and transmission since 1982. - Major generation firms: Endesa, Gener, Colbún, and Suez Energy. - Major distribution/transmission actors: Enersis and Transelec. - Ownership and issuance: - Endesa, Gener and Colbún listed on Chilean stock market and actively issue equity. - Foreign ownership: Endesa and Enersis majority owned by ENEL (Italy); AES Gener by AES Corporation (United States); Suez Energy by Suez (Belgian-French); Transelec controlled by Brookfield Asset Management (Canada); Colbún controlled by the Matte Group (Chilean). - Large Chilean energy companies issue bonds domestically and abroad. - Gener issues almost entirely in pesos and UFs; Colbún and Enersis issued large Yankee bonds. - Domestic bonds at investment grade without insurance; main local purchasers are AFPs and insurance companies. - Maturities often in the 10–20 year range; some at 24- and 30-year tenors. - Yankee bond issuances typically in the US$300–US$500 million range with maturities up to 20 years and ratings in the A-AA range. ### CHILE — HIGHWAYS AND PPPs - Early privatization: - Route 5 upgrade: created 1500km divided-highway toll road; divided into eight segments auctioned between 1995 and 1998; all finished by 2002. - Ongoing PPP use: - Financing suburban freeways, partial beltway around Santiago, and port connectivity improvements. - PPP contracting features: - Build-Operate-Transfer (BOT) basis; operation periods generally 20-30 years. - Some concessions set as present-value payments (example: Talca-Chillán leg of Route 5 in 2004 modified to a net present value of UF 12 million, assuming annual traffic increases of 5 percent per year). - Flexibility allows government to retake control if traffic expands faster than forecast and rebid improvements. - Bidders set base-year tolls within strict Ministry of Public Works limits; tolls adjustable for inflation and factors such as time of concession and safety. - Government may extend concession terms when asking for additional works. - Minimum Income Guarantees (MIGs): - Determined necessary to encourage private participation. - By 2000, traffic exceeded forecasts on almost all routes though some MIGs were called. - Exchange rate risk program (beginning 2005): - Government insured concessionaires against exchange rate risk if financing secured in foreign currency; required government reimbursement if peso weakened below an agreed level and concessionaire reimbursement if peso strengthened. - Three PPPs initially used the program; as the peso strengthened in 2005, companies ended involvement. ### CHILE — CONTINGENT LIABILITIES AND RISK MEASUREMENT - Chilean government includes PPP contingent liabilities in each budget. - Methodology: - Authorities use a stochastic model to estimate revenues and likelihood of MIG being called. - Model generates a risk-weighted series of annual net flows and presents the NPV of expected net flow. - Authorities also estimate a maximum exposure assuming zero revenue flow to demonstrate upper bound of public sector exposure. ### CHILE — OWNERSHIP AND FINANCING PATTERNS FOR HIGHWAYS - Equity and FDI: - Route 5 construction in the 1990s attracted around US$250 million in foreign equity. - Participating foreign firms included Mexican and Spanish firms; PPP to rebuild Santiago’s international airport included a Canadian airport operator. - Most concessions won by domestic Chilean investors or consortia; secondary sales and transfers common (example: Albertis, SA). - Debt and ratings: - Concessionaires used monoliners (XL Insurance or MBIA) to secure AAA domestic Chilean ratings, enabling sales to AFPs and insurance companies. - Of 51 issues trading in 2008, the average original maturity was 21 years. - Infrastructure bond yields have relatively low spreads over government borrowing rates due to high ratings and demand for long-term fixed-income securities. - Limited secondary market trading and low yields constrain refinancing options; some projects refinanced when further improvements made or long-term borrowing rates declined. - Market size and holdings: - At end-September 2008, the corporate bond market totaled US$19.4 billion, or 11.4 percent of GDP. - Infrastructure bonds for PPP projects constituted 20 percent of this total, or 2¼ percent of GDP. - Pension funds and insurance companies hold more than 90 percent of the stock of infrastructure bonds in Chile. - Other PPP uses: - PPPs also used to upgrade public transit and improve airports (example: Transantiago centralization). ### CHINA — OVERVIEW AND FINANCING PATTERNS - Infrastructure expansion: - Construction picked up in late 1980s and accelerated dramatically after 2000 to increase domestic demand and reduce bottlenecks. - Fixed asset investment as a share of GDP has almost doubled in the past decade; about one quarter of that increase is related to infrastructure development. - Local government role: - Local governments, after a 1994 tax reform, promoted infrastructure to generate additional revenues and mobilize financing, often providing guarantees—implicit and explicit—for bank loans and subsidies for infrastructure SPVs. - Funding composition and evolution: - Banking loans: state-owned commercial banks and policy banks hold around 80 percent of total infrastructure loan portfolios; bank financing accounts for more than half of total infrastructure financing. - Direct fiscal support: declining; central and local governments have tended to assign a larger role to debt instruments. - Corporate bonds: becoming more important but remain a small share; many are guaranteed by public banks or associated companies. - Infrastructure SPVs: many are listed on the stock market and channel capital market funds to projects. - Tabulated indicators (2003–2007 highlights as presented): - All financial institutions outstanding infrastructure loans (billions of US Dollar): 476.1, 568.8, 640.9, 771.3, 940.5 (for 2003–2007 respectively); percent of GDP 6.9 (2007). - Outstanding infrastructure loans (in percent of total loans) for all financial institutions: 24.8, 26.4, 27.0, 27.3, 27.3 (2003–2007). ### CHINA — ELECTRICITY SECTOR - Scale and fuel mix: - Electricity production reached 3.7 trillion KWH in 2009; thermal generation accounts for 80 percent; hydroelectric accounts for 18 percent. - Nuclear emerged in early 1990s but remains small; wind generation is growing rapidly but is less than one percent of total. - Industry structure and performance: - Dominated by five large state-owned groups accounting for about half of total electricity production. - More than 50 power generation companies listed in the stock market; private capital active in hydropower and wind projects. - Financial performance of listed electricity companies in 2009: - Median ROE: about 5.8 percent. - Median net margin: 3.9 percent. - Many thermal power plants are at the brink of losses or loss-making; some hydro and wind plants are profitable. - Pricing and policy: - Retail electricity prices are state regulated; input prices such as coal have been increasingly liberalized, squeezing thermal plant profitability. - May 2010 plan announced to encourage private investment in industries previously dominated by SOEs, including electricity production (implementation unclear). ### CHINA — HIGHWAYS AND ROAD INFRASTRUCTURE - Network expansion: - Length of highway more than doubled to 3½ million km in 2009. - Financing composition (2009): - Government expenditure and bank loans ~3/4 of total financing. - Private participation active via BOT and TOT; corporate bonds, asset-backed securities, foreign loans, and listed highway SPVs also contribute. - Listed highway SPVs (2009 aggregates): - Assets totaling more than US$24 billion. - Median ROE around 9 percent. - Median net margin about 36 percent. - Selected SPV indicators (examples, 2009): - Ninghu Hwy: Net margin 1/3 5.03, ROE 12.00, Total assets 3.73 (billions of US$). - Modern Investment: Net margin 35.80, ROE 17.03, Total assets 0.82. - Dongguan Holding: Net margin 62.55, ROE 10.29, Total assets 0.69. - Sources of funding (2007 categories shown): bank loans, local governments, funds from Ministry of Transportation, corporates, central government, foreign funds, others. ### KOREA — INFRASTRUCTURE INVESTMENT AND INSTITUTIONS - Historical role: - Infrastructure investment central to export-driven growth; in the 1960s infrastructure investment ~ one third of gross fixed capital formation. - By the 2000s, infrastructure accounted for 11 percent of gross investment. - Private participation incentives in 1990s: - Partial VAT rebates, capped public guarantees, early completion bonuses, permission for excess profit, compensation for some losses. - Private share and funds: - Private to public investment ratio in infrastructure increased to 18.4 percent in 2008 (decreased to 15.4 percent in 2009 due to higher public infrastructure spending). - Example fund: Macquarie Korean Infrastructure Fund (KIF) around US$1.7 billion under management; institutional investors comprise 62 percent of shareholders, domestic retail 12 percent, foreign retail 26 percent. - By end-2009, US$76 billion in privately executed projects underway in Korea. ### KOREA — ELECTRICITY AND HIGHWAYS - Electricity: - KEPCO and six generation subsidiaries account for approximately 87 percent of electricity generating capacity as of end-2009. - Fuel mix at end-2009: coal 44.1 percent, nuclear about one third. - KEPCO shareholder structure: government and Korea Finance Corporation (KOFC) hold 51.1 percent of common stock; foreigners hold 24.9 percent; domestic investors 24.1 percent. - KEPCO liabilities: bonds domestically and abroad accounted for around two thirds of total KEPCO liabilities by end-2009. - Highways: - Historically largely publicly financed; multilateral lenders covered around one quarter of construction costs during the 1960s. - Between 2000 and 2009, around one-quarter of highway construction was privately financed. - 1994 scheme allowed BOT and BLT; government incentives included minimum revenue guarantees, guarantee of buyout rights, tax reductions and exemptions. - Korea Highway Corporation (KHC) financing (last ten years): - 79 percent from domestic bond issuance; 14.5 percent from foreign bonds. - Domestic bond maximum maturity 30 years; maximum coupon 8.6 percent. - Issuances in 2009 carried spreads of 350-450 basis points above Libor. - Outstanding bond tables (as of end-2009 highlights): - Korea Electric Power Bonds — Domestic share 86.0 percent, Foreign 14.0 percent, Total 100.0 percent; Average of Maturity 6.7 years; Average of Interest rates 5.7 percent. - Korea Highway Bonds — Domestic 95.9 percent, Foreign 4.1 percent, Total 100.0 percent; Average of Maturity 9.3 years; Average of Interest rates 5.1 percent. - Notes: Table entries report Type share (%), Average of Maturity (years), Average of Remaining Maturity (years) 1/, Max of Maturity (years), Average of Interest rates (%), Max of Interest rates (%) with footnotes. ### CROSS-COUNTRY LESSONS AND IMPLICATIONS FOR INDIA - Four cross-cutting themes: - Securing sufficient long-term financing is paramount. - Chile and Korea: developed local bond markets for long-term issuances. - Chile: growing pension system of the 1990s created a market for local currency long-term securities. - China and Brazil: bank loans instrumental; China’s public banks provided long-term finance; Brazil relied on BNDES. - Motivating institutional investors to buy long-term debt often requires credit enhancement. - Chile: private insurance companies insured infrastructure bonds enabling pension fund participation. - Korea: private infrastructure funds operate with extensive background public guarantees. - Brazil and China: public sector banks and implicit local government guarantees have supported financing. - Mobilizing foreign savings pursued in different ways. - Multilateral lenders important in many countries. - Korea and Brazil: large public sector electricity companies issue debt in international markets, benefiting from sovereign-linked ratings. - Chile: high foreign participation in electricity and road PPPs; China: minimal foreign participation. - Financial deepening accompanies infrastructure development (bank credit and bond finance), though causality with growth is unclear. - Specific implications for India: - Banks have dominated infrastructure finance; RBI concerns about asset-liability mismatches and concentration risks limit similar exposures to China. - India has been reluctant to assume contingent fiscal liabilities that a development bank like BNDES might imply. - Domestic institutional investors (insurance companies, pension and provident funds) should be encouraged to diversify from government securities into private infrastructure bonds; the New Pension Scheme (NPS) may expand assets under management. - Regulatory changes needed to allow institutional investment into bonds issued by private insurance companies and to manage exposure to credit risk of infrastructure bonds. - Alternatives: - Risk-seeking domestic investors could partially provide bond insurance if bankruptcy proceedings improve. - Public sector credit guarantees (direct loan guarantees or regulatory forbearance) could be used, but raise fiscal risks that must be transparently managed. - Chilean practice: estimating contingent fiscal liabilities from infrastructure investment using probability-based average cost and maximum exposure could be informative for India. - Multilateral lending pool may not expand quickly; securing private financing likely requires institutional improvements and transparent, pro-business policies to attract foreign investors. - Larger Indian corporates or public utilities might issue shares and bonds in international markets if investment-grade ratings and sovereign-linked support exist; fiscal risks must be carefully monitored. Italic: Source — content excerpt from the supplied IMF PDF chapter/section. ### 1. Output Summary—Contemporary Periods—In Comparison with Pre-boom Periods ........8 ### 1. Output Summary—Contemporary Periods—In Comparison with Pre-boom Periods ### I. INTRODUCTION - India plans to spend US$1 trillion in infrastructure over the next five years. - Most analysts estimate India’s medium-term trend rate of growth at or above 8 percent a year. - India’s high savings rates are expected to support strong infrastructure growth under the 12th Plan. - Under the 11th Plan (covers the period 2007-2012): - Targets for infrastructure finance have broadly been reached, partly driven by the profitability of telecommunications. - In energy, roads, and railroads, funding has either lagged targets or physical output is unlikely to reach Plan targets. - Purpose of the paper: - Examine how other countries have managed rapid infrastructure growth and financing. - Assess how infrastructure booms fit within macroeconomic frameworks. - Provide in-depth case studies of Brazil, Chile, China, and Korea, and draw lessons for India. - Structure: - Section II: Cross-country empirical study of infrastructure investment and macroeconomic variables. - Sections III–VI: Case studies of Brazil, Chile, China, and Korea. - Section VII: Broad lessons for India and conclusions. ### II. INFRASTRUCTURE INVESTMENT AND THE MACROECONOMY - Research questions explored: - Are infrastructure booms associated with more rapid GDP growth? - Are they associated with increases in savings, and if so, are those savings foreign or domestic? - Are they associated with fiscal deterioration? - Are they associated with deepening financial markets? - Literature cited on infrastructure and growth: - Roller and Waverman (2001): significant positive causal link between telecommunication infrastructure and economic growth (21 OECD countries, over 20 years). - Calderón and Servén (2003): positive and significant output contributions of telecommunications, transport and power in Latin America. - Donaldson (2010): Indian historical data (1870-1930) — railroad development reduced trade cost, bolstered trade, and increased real income. - Mohommad (2010): physical infrastructure improvements lead to faster TFP growth in manufacturing. - Canning and Pedroni (2008): infrastructure positively contributes to long run economic growth (cross-country data 1950–1992) despite substantial variations across countries. - Gaps identified: - Little analysis on how infrastructure improvements are financed. - Key financing questions: - Are financing needs met domestically via higher domestic savings or by crowding out other investment? - Are foreign savings accessed via higher current account deficits? - If not financed by private or foreign savings, must public savings increase? - Do financial markets deepen during rapid investment, indicating domestic intermediation, and which parts/instruments of the financial sector are used? ### II.A. DATA AND METHODOLOGY - Econometric challenges: - Current account balances and fiscal deficits are likely jointly determined with large investment booms — endogeneity concerns. - Tax revenues, growth, and infrastructure are interlinked. - Analytical approach: - The analysis aims not to establish causality but to make a first pass at whether relationships exist between infrastructure booms and macroeconomic shifts. - Rather than building a general equilibrium model, the study uses a heuristic, empirical cross-country approach to compare periods of rapid infrastructure investment with slower-investment periods. *Source: _wp11181 - 1. Output Summary—Contemporary Periods—In Comparison with Pre-boom Periods ........8* ### section isolates boom periods in infrastructure investment and tries to assess whether there ### _wp11181 - section isolates boom periods in infrastructure investment and tries to assess whether there ### Data, definitions, and scope - Sample: annual data, 1980 through 2009, for 105 advanced and emerging economies. - Infrastructure measures used: - Electricity production measured in KWH. - Road construction measured in miles (mileage of paved roads). - Definition of booms: periods during which the growth rates of infrastructure capacities are at least ½ - 1 standard deviation higher than their three year moving averages. - Macroeconomic variables scaled by nominal GDP where applicable: fiscal deficit, current account deficit, bank credit, bond market size, central government spending, government revenue. - Data sources cited: CEIC database (macroeconomic data) and BIS (bond market size data). - Rationale for using capacity measures rather than investment flows: - Comparable cross-country investment data not available. - Goal of infrastructure is capacity increased; outputs are better measures than inputs. - Analysis differentiates advanced versus developing economies per IMF classification. ### Growth - Observed correlations: - Energy (electricity) investment booms are contemporaneous with faster growth across the sample. - Road investment booms associated with faster growth in developing countries, but not in developed economies. - Interpretation: - Rapid growth tends to coincide with increases in infrastructure investment; the exception is roads in advanced economies. ### Savings and current account - Theoretical framing: current account = domestic savings − investment; observing which moves indicates domestic vs. foreign financing for booms. - Empirical findings: - Electricity investment booms: savings rates tend to rise without significant increase in the current account deficit → implies investment during electricity booms tends not to rise by more than domestic savings. - Highway (road) construction booms: no similar rise in savings; implies financing via foreign sources or reallocation of domestic investment. ### Fiscal outcomes - Empirical findings across the sample for both electricity and road investment: - No significant changes found in central government current or capital spending during booms. - Government revenue tends to outperform during boom periods relative to pre-boom periods, except: - Advanced economies during booms in electricity production (no apparent change in revenue). - Interpretation and caveats: - Governments appear able to finance infrastructure booms within existing spending envelopes, reallocating funds rather than expanding overall spending. - Caveats include possible local government financing (local spending data unavailable) and the possibility that infrastructure spending is not large enough to noticeably change overall spending envelopes. ### Financial sector implications - Expectations: infrastructure booms likely require additional debt financing; manifest in deeper bond markets and/or faster bank credit growth, unless crowding out occurs. - Empirical findings: - Bond markets tend to grow relative to GDP during infrastructure booms (could reflect rapid growth rather than infrastructure per se). - Bank credit tends to rise relative to GDP during infrastructure booms, with one exception: - Road booms in developing countries do not show bank credit increases. - Interpretation: - Conditions for private finance of infrastructure tend to improve during booms. - The lack of bank credit response for road booms in developing economies may reflect weak banking capacity to finance road construction or prudential constraints. ### Main findings of the macroeconomic analysis - Rapid economic growth and increases in infrastructure investment are strongly associated. - Financing patterns by sector: - Energy (electricity) capacity booms tend to be financed domestically. - Road investment is less likely to be undertaken without foreign capital involvement. - Fiscal stance: - Governments generally finance infrastructure booms within existing spending envelopes. - Additional spending that occurs tends to be exceeded by higher revenues during the boom and associated growth. - Financial markets: - Private capital markets tend to deepen during periods of infrastructure investment, improving conditions for private finance. - Limitations: - Results are correlations; country experiences differ. - Further, detailed country-level analysis is informative for understanding how private and public capital were mobilized. ### Brazil — context and recent policy (overview) - Financial sector characteristics: - Relatively sophisticated banking sector; some banks with extensive foreign operations. - Derivatives markets (particularly foreign currency) well developed. - Stock market capitalization around ¾ of GDP. - Novo Mercado listing segment has rigorous requirements including a minimum float of 25 percent and a requirement that all shares be common rather than preferred stock. - Pension funds relatively small, with assets of around 15 percent of GDP. - Interest rates and lending: - Interest rates generally quite high; short-term rates have fallen over the last 10 years but longer rates remain high. - Corporate spreads higher than comparator countries; most bank-funded private sector lending concentrated in the short term. - Long-term lending tends to come from BNDES (Banco Nacional de Desenvolvimento Econômico e Social). - Growth Acceleration Program (PAC), 2007: - Calls for US$251 billion in additional infrastructure and other investment over four years. - Financing: government (US$34 billion), public enterprises, and the private sector. - Measures include tax exemptions for certain capital and primary goods related to infrastructure and the eventual creation of a tax-exempt national Investment Fund. ### BNDES (Brazil’s development bank) - Role and evolution: - Dominates long-term private sector corporate finance in Brazil. - PAC strengthened BNDES’s central role in infrastructure finance. - BNDES lending for infrastructure projects: - US$3.4 billion in 2003. - US$17.5 billion in 2008. - US$25 billion in 2009. - Activities: - Provides loans directly, guarantees, securities underwriting, and buys bonds placed by some corporations. - Secures financing from retained earnings, some foreign funding (including bilateral and multilateral lenders), various tax and workers’ funds, and debt issued under the government. - Interest rate structure: - Base rate: taxa de juros de longo prazo (TJLP) that moves with inflation and is set by the government. - Sectoral and project-specific spreads added to TJLP. - PAC lowered sectoral spreads; sectoral spreads now generally below 2 percent and in many cases below 1 percent. - BNDES long-term lending rates generally well below the central bank overnight lending rate (SELIC). - Policy debates: - Concerns about BNDES’s dominance, taxpayer and worker fund exposure, potential crowding out of private long-term lending, and stewardship of public/pension resources. - Supporters cite stability provided during financial crises when BNDES expanded credit while private credit fell. ### Brazil — Electricity sector - Structure: - In 2004: 59 companies in generation and 64 in distribution. - Generation concentrated in hydroelectric plants, responsible for 80 percent of generation capacity; the balance from thermal plants and two nuclear plants. - Most hydroelectric investment is public; Elétrobras dominates generation, transmission, and distribution through many subsidiaries. - Elétrobras: - Largest power company in Latin America. - Ownership: national government holds 52 percent of ordinary shares; minority shareholders hold 22 percent; preferred shares participation by minority shareholders at 85 percent. Remaining shares held by Brazilian public funds including pension funds. - Issues ADRs in New York and listed in Latibex (Madrid). - Debt issuance: 2009 issued a US$1 billion bond (first since 2005, when US$300 million issued). - S&P rating on 2009 notes: BBB- (same as Brazilian government). - Receives financing from multilateral and bilateral lenders with a state guarantee. - Involved in large hydro projects including the 11.2 GW Belo Monte project. - Government and Elétrobras have used subsidized credit, tax incentives, and publicly-guaranteed insurance to attract private participation. - Other financing: - Despite lack of long-term private financing at reasonable rates, substantial private sector investment in energy over last 10–15 years. - BNDES is the most common source of long-term financing; commercial banks often provide trade credit. - Electricity profitability reduced after the 2001 crisis and conservation efforts; combined with high cost of capital this constrained investment historically, though profitability window has widened as the economy accelerates and cost of capital has declined. - PAC adjustments for energy finance: - Lowered BNDES spreads: 1 percent for large hydro projects above base rate; 1.5 percent for transmission; 2 percent for distribution. - Repayment periods: 20 years for large hydroelectric projects; 12–14 years for small hydro and thermoelectric projects. - BNDES participation increased: can finance up to 85 percent of hydroelectric projects and 80 percent of gas projects. ### Brazil — Highways (concessions, PPPs, financing) - Concessions and PPPs: - 1990s concession program resulted in around 8 percent of paved federally maintained roads transferred to about 45 private concessionaires; program concentrated in richer south and southeast. - 2004 law allowed joint public financing with primarily private financing and required guarantee funds for PPPs (size limited relative to annual revenues). - Expansion slowed due to legal and bureaucratic roadblocks. - Concessions typically give private control over toll rates; PPPs retain more public control and are used more at state level and for railroads. - Equity and FDI: - Major concessionaires list minority shareholdings domestically and issue equity in the Brazilian market. - CCR (largest concessionaire): listed on São Paulo Novo Mercado in 2002; by 2010, 38 percent of voting shares were traded. - OHL Brasil: free float less than 18 percent of ordinary shares; 60 percent subsidiary of Spanish OHL with Crédit Suisse Hedging holding around 20 percent of the company. - Ecorodovias: around 26 percent free float; majority held by two large Brazilian construction companies. - FDI examples: Brisa (Portuguese) was an important shareholder in CCR until June 2010. - Debt and maturities: - Concessionaires issue local market debt with maturities between 3 and 10 years; longer-tenor interest rates have been well above 12 percent. - Bonds include fixed-rate, interbank-linked, inflation-indexed, or floating-rate instruments; issuance sizes in the range of hundreds of millions of dollars. - BNDES incentives under PAC: - Will finance up to 70 percent of highway project cost at a spread of 1 percent (plus project-specific risk) above the TJLP. - This led to a rapid expansion in road projects; in the first half of 2010 BNDES disbursed US$8.6 billion in road loans, more than twice the amount disbursed in the first half of (previous year implied in source). *Source: _wp11181 - section isolates boom periods in infrastructure investment and tries to assess whether there* ### 2009. It is also involved in designing concessions for road projects. ### _wp11181 - 2009. It is also involved in designing concessions for road projects. ### Multilateral involvement (Brazil) - Interamerican Development Bank: in 2009 approved a 13-year credit for US$900 million for a highway operator building a beltway near São Paulo. - World Bank: often involved in financing of roads; financing for any project is limited to 50 percent of capital. - IFC: part owner of AGConcessões, an important shareholder of CCR. ### Chile — investment environment and financial sector - World Economic Forum (2010) ranked Chile top in Latin America for private infrastructure financing due to macroeconomic and political stability, “extremely well-developed e-government services, clear information on policy changes, transparency and openness of statistics publications, and dialogue and decision-making process”. - World Bank 2010 Doing Business: Chile ranked 49th in the world. - Financial sector indicators: - Stock market capitalization: around 144 percent of GDP (end-2009). - Pension-related assets: reached 83 percent of GDP at end-2007; fell in 2008; rebounded to 87 percent of GDP by end-2009. - Pension system features: - Privatized in 1981; workers given ‘recognition bonds’ and opened accounts in AFPs. - Contributions made automatically; AFPs charge management fees and provide regular reports. - Upon retirement, regulations do not allow full lump-sum payouts; a substantial portion must be turned into an annuity indexed to inflation. - Annuity indexing requirement spurred growth in the insurance industry. ### Financial market effects of pensions - Sustained inflows into AFPs increased demand for fixed income securities matching long-term liabilities. - High historic inflation and indexed annuity requirement created large demand for inflation-indexed instruments. - Most domestic Chilean debt, and almost all debt of maturity greater than five years, is denominated in unidades de fomento (UF), an inflation-indexed unit of account. ### Electricity sector (Chile) - Privatized generation and transmission since 1982. - Major generation firms: Endesa, Gener, Colbún, and Suez Energy. - Major distribution/transmission actors: Enersis and Transelec. - Equity: - Endesa, Gener and Colbún listed on Chilean stock market and actively issue equity. - Foreign ownership: Endesa and Enersis majority owned by ENEL (Italy); AES Gener by AES Corporation (United States); Suez Energy by Suez (Belgian-French); Transelec controlled by Brookfield Asset Management (Canada); Colbún controlled by the Matte Group (Chilean). - Debt: - Large Chilean energy companies issue bonds domestically and abroad. - Gener issues almost entirely in pesos and UFs; Colbún and Enersis issued large Yankee bonds. - Domestic bonds issued at investment grade without insurance; main local purchasers are AFPs and insurance companies. - Maturities often in the 10–20 year range; some at 24- and 30-year tenors. - Yankee bond issuances typically in the US$300–US$500 million range with maturities up to 20 years and ratings in the A-AA range. ### Highways and PPPs (Chile) - Privatization of major roads began early 1990s focused on Route 5 (north-south main highway), transverse roads, and urban toll roads around Santiago. - Route 5 upgrade: - Created 1500km divided-highway toll road from La Serena to Puerto Montt. - Divided into eight segments auctioned between 1995 and 1998; all finished by 2002. - Ongoing PPP use: financing suburban freeways, partial beltway around Santiago, and port connectivity improvements. - PPP contracting features: - Build-Operate-Transfer (BOT) basis; operation periods generally 20-30 years. - Some concessions set as present-value payments (example: Talca-Chillán leg of Route 5 in 2004 modified to a net present value of UF 12 million, assuming annual traffic increases of 5 percent per year). - Flexibility allows government to retake control if traffic expands faster than forecast and rebid improvements. - Bidders set base-year tolls within strict Ministry of Public Works limits; tolls adjustable for inflation and factors such as time of concession and safety. - Government may extend concession terms when asking for additional works. - Minimum Income Guarantees (MIGs): - Determined necessary to encourage private participation. - By 2000, traffic exceeded forecasts on almost all routes though some MIGs were called. - Exchange rate risk program (beginning 2005): - Government insured concessionaires against exchange rate risk if financing secured in foreign currency; required government reimbursement if peso weakened below an agreed level and required concessionaire reimbursement if peso strengthened. - Three PPPs initially used the program; as the peso strengthened in 2005, companies ended involvement. ### Contingent liabilities and risk measurement - Recognition of MIGs as a fiscal risk led Chilean government to include PPP contingent liabilities in each budget. - Methodology: - Authorities use a stochastic model to estimate revenues and likelihood of MIG being called. - Model generates a risk-weighted series of annual net flows and presents the NPV of expected net flow. - Authorities also estimate a maximum exposure assuming zero revenue flow to demonstrate upper bound of public sector exposure. ### Ownership and financing patterns for highways - Equity: - PPPs attracted substantial FDI: Route 5 construction in the 1990s attracted around US$250 million in foreign equity. - Participating foreign firms included Mexican and Spanish firms; a PPP to rebuild Santiago’s international airport included a Canadian airport operator. - Most concessions won by domestic Chilean investors or consortia; transfer of concessions and secondary sales common (example: Albertis, SA now operates several Route 5 segments despite not constructing them). - Debt: - Private road projects largely debt-financed. - Concessionaires used monoliners (generally XL Insurance or MBIA) to secure AAA domestic Chilean ratings, enabling sales to AFPs and insurance companies. - Of 51 issues trading in 2008, the average original maturity was 21 years. - Infrastructure bond yields have relatively low spreads over government borrowing rates due to high ratings and demand for long-term fixed-income securities. - Limited secondary market trading and low yields constrain refinancing options; some projects refinanced when further improvements made or long-term borrowing rates declined. - Market size and holdings: - At end-September 2008, the corporate bond market totaled US$19.4 billion, or 11.4 percent of GDP. - Infrastructure bonds for PPP projects constituted 20 percent of this total, or 2¼ percent of GDP. - Pension funds and insurance companies hold more than 90 percent of the stock of infrastructure bonds in Chile. ### Other PPP uses - PPPs also used to upgrade public transit and improve airports. - Example: centralization of Santiago’s informal bus network into Transantiago in early 2000s. *Source: _wp11181 - 2009. It is also involved in designing concessions for road projects.* ### 2007. PPPs were used to build the infrastructure of boarding and transfer stations and to ### _wp11181 - 2007. PPPs were used to build the infrastructure of boarding and transfer stations and to ### China: overview and financing patterns - Infrastructure construction picked up in late 1980s and accelerated dramatically after 2000 to increase domestic demand and reduce bottlenecks. - Fixed asset investment as a share of GDP has almost doubled in the past decade; about one quarter of that increase is related to infrastructure development. - Local governments have been major drivers since obtaining economic autonomy; after a 1994 tax reform they promoted infrastructure to generate additional revenues. - Local governments mobilize financing by providing guarantees—implicit and explicit—for bank loans and sometimes subsidies for infrastructure SPVs. - Evolving funding pattern: - Banking loans: state-owned commercial banks and policy banks hold around 80 percent of total infrastructure loan portfolios; bank financing accounts for more than half of total infrastructure financing. - Direct fiscal support: declining; central and local governments have tended to assign a larger role to debt instruments. - Corporate bonds: becoming more important but remain a small share; many are guaranteed by public banks or associated companies. - Infrastructure SPVs: many are listed on the stock market and channel capital market funds to projects. - Table highlights (as presented): - All financial institutions outstanding infrastructure loans: 476.1, 568.8, 640.9, 771.3, 940.5 (in billions of US Dollar) for 2003–2007 respectively; percent of GDP 6.9 (2007). - Outstanding infrastructure loans (in percent of total loans) for all financial institutions: 24.8, 26.4, 27.0, 27.3, 27.3 (2003–2007). ### China: electricity sector - Electricity production reached 3.7 trillion KWH in 2009; thermal generation accounts for 80 percent; hydroelectric accounts for 18 percent. - Nuclear emerged in early 1990s but remains small; wind generation is growing rapidly but is less than one percent of total. - Industry structure: - Dominated by five large state-owned groups accounting for about half of total electricity production. - More than 50 power generation companies listed in the stock market; private capital active in hydropower and wind projects. - Financial performance of listed electricity companies in 2009: - Median ROE: about 5.8 percent. - Median net margin: 3.9 percent. - Many thermal power plants are at the brink of losses or loss-making; some hydro and wind plants are profitable. - Policy and pricing: - Retail electricity prices are state regulated; input prices such as coal have been increasingly liberalized, squeezing thermal plant profitability. - May 2010 plan announced to encourage private investment in industries previously dominated by SOEs, including electricity production (implementation unclear). ### China: highways and road infrastructure - Length of highway more than doubled to 3½ million km in 2009. - Financing in 2009: government expenditure and bank loans ~3/4 of total financing. - Private participation: active, using BOT and TOT; corporate bonds, asset-backed securities, foreign loans, and listed highway SPVs also contributing. - Listed highway SPVs (2009) aggregate: - Assets totaling more than US$24 billion. - Median ROE around 9 percent. - Median net margin about 36 percent. - Source of funding (2007 figure categories shown): bank loans, local governments, funds from Ministry of Transportation, corporates, central government, foreign funds, others. - Selected highway SPV financial indicators (2009) — examples from table: - Ninghu Hwy: Net margin 1/3 5.03, ROE 12.00, Total assets 3.73 (billions of US$). - Modern Investment: Net margin 35.80, ROE 17.03, Total assets 0.82. - Dongguan Holding: Net margin 62.55, ROE 10.29, Total assets 0.69. - (Table lists 18 entities with Net margin (%), ROE (%), Total assets (billions of US$).) ### Korea: infrastructure investment and institutions - Infrastructure investment was central to export-driven growth; in the 1960s infrastructure investment ~ one third of gross fixed capital formation. - By the 2000s, infrastructure accounted for 11 percent of gross investment. - Private participation increased in the 1990s through incentives: partial VAT rebates, capped public guarantees, early completion bonuses, permission for excess profit, compensation for some losses. - Private to public investment ratio in infrastructure increased to 18.4 percent in 2008 (decreased to 15.4 percent in 2009 due to higher public infrastructure spending). - Private equity infrastructure funds established; example: - Macquarie Korean Infrastructure Fund (KIF) around US$ 1.7 billion under management; institutional investors comprise 62 percent of shareholders, domestic retail 12 percent, foreign retail 26 percent. - By end-2009, US$76 billion in privately executed projects underway in Korea. ### Korea: electricity and highways - Electricity: - KEPCO and six generation subsidiaries account for approximately 87 percent of electricity generating capacity as of end-2009. - Fuel mix at end-2009: coal 44.1 percent, nuclear about one third. - KEPCO shareholder structure (Figure 12 summary): government and Korea Finance Corporation (KOFC) hold 51.1 percent of common stock; foreigners hold 24.9 percent; domestic investors 24.1 percent. - KEPCO liabilities: bonds domestically and abroad accounted for around two thirds of total KEPCO liabilities by end-2009. - Highways: - Historically largely publicly financed; multilateral lenders covered around one quarter of construction costs during the 1960s. - Between 2000 and 2009, around one-quarter of highway construction was privately financed. - 1994 scheme allowed BOT and BLT; government incentives included minimum revenue guarantees, guarantee of buyout rights, tax reductions and exemptions. - Korea Highway Corporation (KHC) financing (last ten years): - 79 percent from domestic bond issuance; 14.5 percent from foreign bonds. - Domestic bond maximum maturity 30 years; maximum coupon 8.6 percent. - Issuances in 2009 carried spreads of 350-450 basis points above Libor. - Tables on outstanding bonds (as of end-2009): - Korea: Outstanding Electric Power Bonds — Domestic share 86.0 percent, Foreign 14.0 percent, Total 100.0 percent; Average of Maturity 6.7 years (Total); Average of Interest rates 5.7 percent (Total). - Korea Highway Bonds — Domestic 95.9 percent, Foreign 4.1 percent, Total 100.0 percent; Average of Maturity 9.3 years (Total); Average of Interest rates 5.1 percent (Total). - Notes: Table entries report Type share (%), Average of Maturity (years), Average of Remaining Maturity (years) 1/, Max of Maturity (years), Average of Interest rates (%), Max of Interest rates (%) with footnotes (1/ as of December 31, 2009; 2/ Domestic Bonds includes currency swap and private placement). ### Cross-country lessons and implications for India (conclusions) - Four cross-cutting themes: - Securing sufficient long-term financing is paramount. Approaches varied: - Chile and Korea: developed local bond markets for long-term issuances. - Chile: growing pension system of the 1990s created a market for local currency long-term securities. - China and Brazil: bank loans instrumental; China’s public banks provided long-term finance; Brazil relied on BNDES. - Motivating institutional investors to buy long-term debt often requires credit enhancement: - Chile: private insurance companies insured infrastructure bonds enabling pension fund participation. - Korea: private infrastructure funds operate with extensive background public guarantees. - Brazil and China: public sector banks and implicit local government guarantees have supported financing. - Mobilizing foreign savings pursued in different ways: - Multilateral lenders important in many countries. - Korea and Brazil: large public sector electricity companies issue debt in international markets, benefiting from sovereign-linked ratings. - Chile: high foreign participation in electricity and road PPPs; China: minimal foreign participation. - Financial deepening accompanies infrastructure development (bank credit and bond finance), though causality with growth is unclear. - Specific implications for India: - Banks have dominated infrastructure finance; RBI concerns about asset-liability mismatches and concentration risks limit similar exposures to China. - India has been reluctant to assume contingent fiscal liabilities that a development bank like BNDES might imply. - Domestic institutional investors (insurance companies, pension and provident funds) should be encouraged to diversify from government securities into private infrastructure bonds; the New Pension Scheme (NPS) may expand assets under management. - Regulatory changes needed to allow institutional investment into bonds issued by private insurance companies and to manage exposure to credit risk of infrastructure bonds. - Alternatives: - Risk-seeking domestic investors could partially provide bond insurance if bankruptcy proceedings improve. - Public sector credit guarantees (direct loan guarantees or regulatory forbearance) could be used, but raise fiscal risks that must be transparently managed. - Chilean practice: estimating contingent fiscal liabilities from infrastructure investment using probability-based average cost and maximum exposure could be informative for India. - Multilateral lending pool may not expand quickly; securing private financing likely requires institutional improvements and transparent, pro-business policies to attract foreign investors. - Larger Indian corporates or public utilities might issue shares and bonds in international markets if investment-grade ratings and sovereign-linked support exist; fiscal risks must be carefully monitored. *Italic: Source — content excerpt from the supplied IMF PDF chapter/section.* ### References ### References ### Listed works - Aschauer D. 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(1998), “Public Investment and Private Capital Formation in a Vector Errorcorrection Model of Growth,” Applied Economics, Vol. 30, pp 837-844. - Gramlich E. M. (1994), “Infrastructure Investment: A Review Essay,” Journal of Economic Literature, Vol. XXXII, pp 1176-1196. - Holtz-Eakin D. and Schwartz A.E. (1995), “Infrastructure in a Structural Model of Economic Growth,” Regional Science and Urban Economics, Vol. 25, pp 131-151. - Mohommad, A. (2010). “Manufacturing Sector Productivity in India: All-India Trends, Regional Patterns, and Network Externalities from Infrastructure on Regional Growth,” Dissertation, University of Maryland. - Pedroni, P. (1998a), “On the Role of Human Capital in Growth Models; Evidence from a Nonstationary Panel of Developing Countries,” working paper, Indiana University. - Röller, L.H. and L. Waverman (2001), “Telecommunications Infrastructure and Economic Development: A Simultaneous Approach,” American Economic Review, 91, (4). *Source: _wp11181 - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11181.pdf_