In July, the World Bank launched a new document aimed at government officials, supporting the development of public-private partnerships (PPPs) titled Guidance on PPP legal frameworks. As the blog announcing its publication emphasised, “expanding countries’ toolkits to finance infrastructure has taken on increasing urgency with trillions of dollars of infrastructure investment forecast as needed over the next few decades to meet the UN’s Sustainable Development Goals and support the accelerating net zero agenda. One way to do that is through public-private partnerships.”
The document and its underlying assumptions about the benefits of crowding-in private sector finance for development, and in particular to meet the much-touted infrastructure financing gap through the widespread use of PPPs, is very much in line with the World Bank’s widely-criticised Green, Resilient, Inclusive Development (GRID) paradigm on which its current crisis response is anchored (see Observer Autumn 2022). The Bank’s new guidance covers a variety of topics including how to structure PPP contracts. The note makes clear the Bank’s continued PPP push within its GRID approach, despite long-standing (see Observer Autumn 2015) and well-documented criticisms of the numerous problems posed by the model and evidence of their failure on economic, equity and human rights grounds – including in high-income countries such as the United Kingdom and France (see Observer Summer 2018; Dispatch Springs 2018). The failures of the model were such that they led 153 civil society organisations from 45 countries in 2017 to issue a PPP Manifesto calling on the World Bank, IMF and other public development banks to halt the aggressive promotion of PPPs and to “support countries in finding the best financing method for public services in infrastructure, which are responsible, transparent, environmentally and fiscally sustainable, and in line with their human rights obligations.” Evidence of the negative consequences of PPPs however continued to mount as outlined in Belgium-based network Eurodad’s 2018 History RePPPeated report.
IMF concerns about fiscal risks of PPPs highlight the implications of poorly designed PPP contracts in context of debt crisis
In July the IMF published a staff note titled Mobilizing Private Climate Financing in Emerging Market and Developing Economies (see Observer Autumn 2022). The staff note repeats previously stated IMF concerns about the fiscal risks posed by contingent liabilities and other challenges arising from ‘risky’ infrastructure PPPs, stressing that “public-private partnership investment implies potentially large public debt increases through the crystallization of contingent liabilities.” This warning is particularly concerning in light of the mounting debt crisis (see Observer Winter 2021) with PPPs potentially a ticking fiscal time bomb. The note nonetheless highlights the positive ‘multiplicative’ effect of public-private cooperation and PPPs in financing climate action, thus bringing to the fore the key role played by PPP legal frameworks in ensuring appropriate risk-sharing between the state and private finance, and the potential detrimental consequences of flaws contained in the Bank’s proposed framework.
While the launch announcement stressed that, “the guidance also received expert technical review and support from various private and public sector stakeholders during consultations conducted in the fall of 2021,” no consultation with civil society organisations took place to inform the document. The exclusion of civil society from the consultation process took place despite the fact that civil society research on the World Bank’s 2017 Guidance on PPP Contractual Provisions performed by law firm Foley Hoag detailed a litany of problems with the proposed provisions, including that the guidance, “does not allocate the risk of PPPs between governments and private investors in a balanced manner…gains tend to be privatized and losses socialized.”