CARTAGENA, Colombia, CMC – A new study by the Inter-American Development Bank (IDB) has found that national development banks (NDBs) are among the key institutions responsible for long-term financing of infrastructure projects in Latin America and the Caribbean (LAC).

The study has been presented at the Finance in Common Summit (FICS) that ends here today.

According to the study, NDBs were the second-largest source of financing, behind the private sector, for projects developed under project finance schemes between 2004 and 2021.

The study shows that 26 entities in 10 countries participated in private infrastructure financing under the project finance scheme. Water and energy, with contributions of 24.4 per cent and 23.7 per cent, respectively, were the sectors with the highest NDB investments during the same period.

The chief of the IDB’s Connectivity, Markets and Finance Division Anderson Caputo said, “This study shows a tremendous opportunity to expand the role of NDBs in financing this infrastructure in the region.

“It also provides important insights about how to develop a comprehensive strategy for public banking to help finance sustainable infrastructure projects and mobilise private capital,” he added.

According to the study, public development banks (PDBs) have helped mobilise private investment by reducing some of the factors that contribute to the private sector’s perception of high risk associated with infrastructure projects.

For example, the implementation of standardised programmes that provide greater certainty to investors and the use of financial instruments aimed at reducing credit risk have allowed PDBs to contribute to the financial viability of projects. The longer-term financing in local currency offered by PDBs also boosts financial viability and attracts private investment.

In this regard, the study found that NDBs are the largest provider of debt in local currency, which makes up 81 per cent of their total financing, surpassing the private sector and bilateral and multilateral organisations. Furthermore, the financing terms offered by NDBs are longer than those of the private sector and even approach those provided by bilateral and multilateral development organisations.

The study is part of an effort by the IDB and the Latin American Association of Development Financing Institutions (ALIDE) to strengthen NDB operations in the region to help bridge the infrastructure gap in Latin America and the Caribbean through increased private capital mobilisation.

It is estimated that the region needs to invest US$2.2 trillion by 2030 in the water and sanitation, energy, transportation, and telecommunications sectors to expand and maintain the infrastructure it needs in order to meet the UN’s Sustainable Development Goals (SDG). This means that, in terms of investment effort relative to the size of the economy, the region needs to invest at least 3.12 per cent of its GDP in infrastructure each year.

The study recommends strengthening the role of PDBs in developing new infrastructure projects in high-impact social and environmental sectors, enhancing capacities for preparing and structuring financially viable infrastructure projects. Likewise, it suggests channelling public and development resources towards PDBs to develop risk mitigation instruments that attract private investment.