The use of subsidies by development finance institutions in the infrastructure sector
There are large unmet financing needs for infrastructure sector in developing countries, particularly in Africa. Estimates indicate the need for as much as a doubling of recent infrastructure investment trends. But private service providers and public private partnership arrangements still face several implementation challenges. The high costs and risks of building infrastructure may justify the involvement of development finance institutions (DFIs) and a degree of subsidy to the private sector. Use of subsidies by DFIs and donors is widespread but can be non-transparent and difficult to measure and value. Subsidies can have a legitimate role when they are targeted at specific market failures. The purpose of the study is to examine the existence, type and extent of subsidies in DFI development activities in the infrastructure sector and to recommend ways of increasing transparency amongst the DFIs.
Dirk Willem te Velde
Director of International Economic Development group, Principal Research Fellow