Greater participation by institutional investors in longer term financing of projects will be dependent on developing more creditworthy projects and providing greater incentives for investors, including through multilateral development bank (MDB) programs, it said.
“Both regions have a strong need to invest in infrastructure,” it said.
“The World Economic Forum (WEF) estimates a global infrastructure gap of about $1 trillion per year on average from 2010-30, while other studies suggest a similar figure for developing countries alone.
“Infrastructure is a government priority in both regions and there is a need to diversify funding sources. Economic challenges and a sharp fall in commodity prices are limiting the ability of certain governments to materially increase funding, whereas banks are restricting lending to protect balance sheets and enhance liquidity.”
Infrastructure debt financing is dominated by state-backed and commercial banks. In Asia, infrastructure financing is reliant on lending by commercial and government-owned banks.
Debt capital market finance is limited, although more prevalent in China, South Korea and Malaysia.
In Latin America, state-backed long term lenders dominate, whereas commercial banks target lower risk or government supported projects. International markets are accessed mainly by state-owned enterprises (SOEs), in both regions.
“A pipeline of creditworthy projects will boost infrastructure financing,” the report states.
“Infrastructure financing requires significant expertise, which is not yet fully developed in either region. The emergence of an attractive pipeline of projects will encourage institutional investors to commit resources to research infrastructure investment opportunities.
“Such a development could in turn create a virtuous circle in which the investors’ increased familiarity with the asset class incentivizes them to increase investment in the sector.”
Greater participation of MDBs is crucial in boosting infrastructure finance, according to Moodys.
“Factors hindering long-term infrastructure funding in both regions include economic volatility and evolving regulatory and legal frameworks,” it said.
“MDBs can play a key role through direct funding, the provision of credit enhancement, policy guidance and technical assistance. They can also facilitate coordination between development banks and other public and private-sector entities.”
