Yes, it is possible to finance critical infrastructure in a tight economy


The world economy is traversing difficult times. No sooner was economic growth beginning to recover after the COVID-19 pandemic, than the Russian invasion of Ukraine dealt another blow to global prospects, with 2023 growth to slow to 1.7% from 3% expected six months ago.

The cumulative impact of these global crises has led to a significant deterioration in the financing environment for large development projects. This comes at a time when there is a pressing urgency to invest in inclusive and climate-smart quality infrastructure to support the transition to net-zero carbon economies, protect societies from mounting climate-related risks, and achieve universal access to basic services for millions of households who remain excluded.

Governments, who have traditionally funded major infrastructure projects, are experiencing unprecedented fiscal stress. Public debt was already on an unsustainable trajectory for many low- and middle-income countries prior to the conflict in Ukraine, and fiscal sustainability is likely to be further eroded by weaker growth prospects and higher borrowing costs. Debt indicators in developing countries continue to worsen: at the end of 2021, the external debt of these economies totaled $9 trillion, more than double the amount a decade ago, with 60% of the poorest countries at high risk of debt distress or already in distress. Meanwhile, depreciating exchange rates and tightening monetary policy are making external debt increasingly costly to service.

Given the tight fiscal space, governments can turn to the private sector to finance certain types of projects capable of offering attractive commercial returns—such as renewable energy, port expansions, or major highways.   In fact, from the year 2000 up until the global pandemic, the private sector has on average supported about $90 billion in real terms (in 2022 dollars)-worth of infrastructure projects in emerging markets each year. As much as 50% of the new power generation capacity constructed in low- and middle-income countries between 2000 and 2020 was financed by the private sector. Renewable energy averaged more than half of newly added capacity between 2011 and 2019.

However, the current global macroeconomic context is also reducing private sector appetite and ability to finance infrastructure projects in emerging markets. Global financial conditions have tightened considerably, reflecting increases in monetary policy rates, greater volatility, and waning risk appetite. At the same time, heightened risk perceptions are also increasing the cost of new borrowing, with some 30 emerging economies experiencing multiple downgrades in sovereign risk premiums during 2020 alone. This has prejudiced foreign direct investment flows to emerging economies, which fell by 14% in 2020 to reach their lowest levels for a decade.

Just about every major global crisis has led to a significant downturn in private capital flows to infrastructure projects in low- and middle-income countries. Whether it was the Asian financial crisis of 1998, the SARS outbreak of 2003, or the European debt crisis of 2012, such periods of crisis have prompted an immediate downturn in private finance of between 20–60%. Although some rebound is to be expected in the immediate aftermath of the crisis, the overall dampening effect can persist for several years. For example, after the Asian financial crisis of 1998, private capital flows took as long as a decade to return to pre-crisis levels.

As the world enters the third year of the COVID-19 crisis, we see that aggregate output in low- and middle-income countries rebounded in 2021 after a sharp decline in 2020. The recovery continued through the first half of 2022 , but the data provides a mixed picture. Private investments in infrastructure in the first half of 2022 stood at $42.3 billion across 120 projects, marking an increase of 24% from the first half of 2021. While the East Asia and Pacific and South Asia regions have shown strong recoveries in infrastructure investments, this was not the case in Europe and Central Asia, Latin America and the Caribbean, the Middle East and North Africa, or Sub-Saharan Africa. The transport sector again outpaced the other sectors in terms of private capital flows to infrastructure, posting $28.4 billion across 41 projects. In addition, since most travel restrictions have been lifted, private investment commitments in airports are also seeing continuous growth.

Investment in the energy sector in the first half of 2022 dropped by 12% from the first half-year of 2021 levels, recording the lowest levels in the last 10 years. On a positive note, almost 90% of 55 new electricity-generation projects used renewable-energy sources. In terms of investment volume, almost 44% of new electricity-generation investments were in renewables.


Action is urgently needed to bolster lagging private capital flows and support to the financing of resilient infrastructure, which not only improves people’s lives today, but also prepares their economies for the future. Turning around the current situation calls for concerted efforts by governments and international financial institutions across several key areas.

Every dollar of investment, whether public or private, must support high-quality, sustainable infrastructure that maximizes its value to a country’s economy, citizens, and environments.  The fact is that the world needs more—and better—infrastructure investment.

As economic stimulus continues to slow, credit conditions continue to tighten, and uncertainty from overlapping crises intensify even more, there will be even greater need for reforms and for increasing private investment in infrastructure.  While guarantees de-risk projects and enhance credit risk, ultimate de-risking is achieved through cross-cutting and sector structural reforms, such as legal, regulatory, and institutional reforms, transparent accounting for contingent liabilities, and others, that will contribute to achieving the financial sustainability to systematically attract the private sector.

This will require working collectively to enable private sector solutions and putting in place stronger foundations for a post-crises recovery. The risk calculus for the private sector may remain challenging, but with high risk potentially comes high reward. The World Bank Group, alongside other bilateral and multilateral development partners, stands ready to support our client countries to enable and mobilize private capital for infrastructure investment  as part of a green, resilient, and inclusive recovery.