Development financing: Eradicating poverty or private sector promotion?: Page 2 of 2

Posted on 13 July 2019

portfolio flows. They could be targets of multilateral development banks’ (MDBs) and governments’ “risk-sharing” instruments such as risk insurance and guarantees, and public-private partnership modalities, towards increasing private investment (e.g., of institutional investors) in developing country infrastructure.

The role of multilateral development banks

Multilateral development banks are crucial actors in today’s promotion of the private sector in development. As conceived by a chorus of multilateral development banks, OECD countries and even the G20 countries, there is a need for more private sector in development, especially in the area of infrastructure in developing countries. According to the World Bank Group (WBG),approved a set of principles that give the World Bank Group and other multilateral development banks a framework for increasing private investment to support countries’ development objectives.”

Towards this, the G20 encourages a Roadmap to develop “bankable” projects (i.e., projects that generate returns for investors), and shaping “infrastructure as an asset class,” through improved investment environments and greater financial standardisation. Infrastructure as a “standardized, large-scale asset class...will help mobilize th[e] huge untapped pool” of institutional investors towards developing countries’ infrastructure. There is thus a drive to multiply “private capital by adopting system-wide approaches to risk insurance and securitization.”

Concerns on the current private sector drive

Concerns and questions abound regarding blended finance and the drive to create “bankable projects.” There is the question of whether blended finance and other modes of private sector promotion achieve the supposed aim of filling the gap through mobilising investment, and more importantly, whether these could contribute to development. Generally, according to the IATF report, no “major uptake” in private investment levels has taken place so far despite the drive for “bankable” developing country infrastructure.

As Northern countries, the G20, and MDBs promote private sources and different forms of blended finance, developed countries get to evade their existing ODA commitments. This is corroborated by stagnating development assistance flows and the use of in-donor costs to inflate figures in the past years. The need for generating domestic finance sources (e.g., progressive taxation) and other responsibilities of state actors in developing economies are also downplayed. Low tax revenues in least developed countries prevail, and there is a global trend of incurring revenues largely from more regressive, indirect taxes on consumer goods and services. ###