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CSOs refuse to participate in World Bank PPP consultation

6 April 2017

private-and-public-accounting

In February, 115 civil society organisations (CSOs) from around the globe, including Colombia’s Instituto Popular de Capacitación and Kenya Debt Relief Network, sent a letter to the World Bank executive directors and its public-private partnerships (PPP) team stressing that they will not participate in its consultation on PPP contractual provisions until the Bank meets a series of demands.

The demands included that the Bank advises countries to “only consider PPPs if their full costs and contingent liabilities are reported on-balance sheet and registered as government debt” and only after a full and transparent analysis has been conducted “of the true costs and benefits of PPPs over the lifetime of the project”. The letter called on the Bank to “only consider PPPs if their full costs and contingent liabilities are reported on-balance sheet and registered as government debt” and only after a full and transparent analysis has been conducted “of the true costs and benefits of PPPs over the lifetime of the project”. The letter called on the Bank to only fund PPP projects if “the partner country decides to register the costs and liabilities on-balance sheet.” The letter also stressed that, as outlined in 2015 research by Belgian-based NGO network Eurodad, “many countries go for PPPs instead of traditional procurement not because of efficiency gains, but because non-transparent accounting measures allow them to keep the costs and contingent liabilities ‘off-balance sheet’, keeping the true costs of the projects hidden”. CSOs have long made their concerns about the potential dangers of PPPs clear to the World Bank (see Observer Summer 2016, Autumn 2015).

IMF cautions about PPPs

In line with civil society concerns, in December 2016, IMF deputy managing director Tao Zhang cautioned that “while PPPs are “very appealing” when “fiscal space is limited”, they present considerable risks, including that “they can be costly and reduce budget flexibility in the long term. For example, governments have to make annual payments after the infrastructure is delivered; they can give rise to contigent liabilities such as guarantees to the private partner, and there are further risks if governments use PPPs to move debt off their balance sheets and create future liabilities.”

[PPPs] can be costly and reduce budget flexibility in the long termTao Zhang, IMF

In March Gerd Schwartz, deputy director at the IMF’s Institute for Capacity Development, told news magazine Public Finance International that “one thing we know about PPPs is that they require very strong public governance institutions. Because the private sector has a lot of good lawyers, and you can be sure they will force the government to do things it hasn’t thought of.” Echoing concerns often raised by civil society, he stressed that fostering private sector development in Africa means that “you create a lot more contingent liabilities. And if you don’t build up public sector institutions to deal with this, you’re going to be in trouble in a few years’ time” (see Observer Spring 2016). Schwartz therefore “urged countries, and donor governments, to take into account the risks involved” with PPPs.