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A market-based mechanism to improve capital expenditures

Werker, Eric (2013) A market-based mechanism to improve capital expenditures. International Growth Centre Blog (10 Dec 2013). Website.

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Most governments in Sub-Saharan Africa have a capital spending problem. They don’t spend enough money to build or improve infrastructure that is in obviously short supply. What has emerged as a ‘second-best’ solution to this problem is infrastructure-directed lending by the development agencies. This is an unfortunate solution, not just for the weakness in state capacity that it perpetuates, and the fiscal space it frees up for countries to undertake expensive commercial borrowing, but also because it links unnecessary debt to necessary infrastructure. I propose a private sector-based solution that links infrastructure spending to contemporaneous revenues, in which the useful functions of the development agency are opened up to competition and the debt financing is replaced by markets for political risk. This solution could not only reduce the cost and debt burden of building infrastructure, but also create high-powered incentives that would solve the weaknesses in state capacity that made debt-linked infrastructure necessary in the first place.

Item Type: Online resource (Website)
Official URL:
Additional Information: © 2013 The Author(s)
Divisions: International Growth Centre
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
J Political Science > JF Political institutions (General)
Date Deposited: 22 Jun 2017 11:34
Last Modified: 15 Sep 2023 19:11

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