Strategy for Essential Assist to States for Developing Infrastructure Projects

Infrastructure is essential to a state’s development. With infrastructure, the citizens can have access to roads, hospitals, schools, homes, and so much more. Many countries, however, do not have access to infrastructure projects funds, or the other resources one needs to build. Sometimes they have to borrow from international entities like the World Bank-International Monetary Fund (WB-IMF). They then have to allocate a portion of their budget to paying off  that debt, as well as comply with any standards that the World Bank might impose on various social institutions. To avoid this possibility, some governments turn to private financing.

Private financing is a way for governments and other entities to get the funds, skilled labor and materials they need for important projects such as infrastructure. Here are some ways that states can start up a new wave of infrastructure projects so desperately needed by every country.

Public-Private Partnership

Sad as it may seem, many governments do not have access to adequate funds, materials and the expertise needed to build hospitals and apartment buildings to certain stringent standards. This is where the government needs to partner up with a private entity, say, some project finance companies in India.

Project financing companies do a great deal of communicating with entities such as moneylenders, shareholders, materials suppliers, building contractors and the like.  They are the way to go if state governments are not able to finance and run infrastructure projects. Private financing companies follow a complex network whenever they are hired to run a project. The next sections describe a bit of this network.

Funding

Depending on the project, the project financing company may have to start with a loan. They handle talking to the bank or a moneylender to finance the project. If sometimes, that isn’t enough, they contact stockholders who want to fund the project. Thus the government doesn’t have to divert funds from other institutions or from other allocations.

This way, the debt generated the project can be off-balance-sheet. This means that the government won’t have to allocate funds from a strained budget to that  particular project. However, this does not mean that the government is shoving responsibility onto a private entity. The government will have to take responsibility for the cost of that project sooner or later.

Benefits

Project financing can lessen the strain on the government. It allows governments to take on infrastructure projects without having to pay a debt right away. As mentioned earlier, the project will not be counted on the government’s spending sheet, removing the need for reallocation of budget funds. It also makes spending less risky, because the client, or the government will know that they can pay for the project at a rate that they can (Khan, 2012).

The government also will not have to choose the tools and materials for the job, if they are not able to do so. The financing company will take care of that, and know how to use the funds they collect in the most cost-effective way.

Author Bio:

Candice Hubbard is a writer who reveals information on how project finance companies in India process and use infrastructure projects funds for the government. He also discusses public-private economy.