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Paying for water and sanitation
The essential role of public finance
The economic crisis makes it doubly important that governments use public spending on infrastructure such as water and sanitation. Firstly, because this is the best way of countering the effects of recession. The USA reflationary package is centered around public spending on infrastructure. The World Bank recommends that as many countries as possible adopt similar policies. Infrastructure spending has a far greater economic impact than tax cuts. Secondly, because private corporations now find it very hard to raise any finance. They are being charged much higher interest rates to replace existing debts, because of fears of default. And there is almost no interest in financing ventures in developing countries. The IFC, the private sector financing arm of the World Bank, believes that the credit squeeze will make it even harder to finance PPPs. Private investors are less interested in infrastructure in developing countries: "private equity funds are hoarding capital; Asian and Middle Eastern sovereign wealth funds may divert more of their portfolios to their regions; investors are demanding higher returns for a given level of risk; poorer developing countries are being crowded out as private investors are focusing on the largest emerging markets." The IFC estimates that $110 billion worth of proposed PPPs may be delayed or cancelled, and that $70 billion of existing PPPs are at risk because of increased costs of financing these projects for the private sector.