Fitch: Debt repayment is infrastructure creation’s biggest issue

When taking on infrastructure upgrades, allocating revenue for debt repayment is the largest obstacle developed economies must overcome, according to a new report by Fitch Ratings.    When taking on infrastructure upgrades, allocating revenue for debt repayment is the largest obstacle developed economies must overcome, according to a new report by Fitch Ratings.
   Creating revenue streams for infrastructure investment is a problem and because of public and political perception, there’s no easy solution.
   In “Infrastructure Investment in Developed Economies,” Fitch found that “this problem is compounded by the fact that most of these markets’ most urgent projects are upgrades to existing infrastructure, where higher costs for users or taxpayers may be politically harder to justify than for high-profile new projects.”
   Finding financing for the projects is not the issue, Fitch found, as countries with large infrastructure deficits have deep capital market pockets. These countries are also equipped with financing methods that could easily raise needed infrastructure funds.  
   “Instead, the ability to secure a revenue stream from either users or taxpayers is generally the limiting factor,” Fitch reported. “The problem requires an often-difficult political decision on who should pay for facilities that only a fraction of the population will use and that will also be used by future generations.”
   Fitch continued, “It is politically difficult to make people pay through either fees or taxes for a service that is not new and just aims to maintain what already exists.”
   To compound this issue, Fitch found that politicians see public-private partnerships as “inefficient and costly,” a bias that might be formed from experience because these partnerships can be poorly designed if not properly envisioned.  
   “The combined effect is that there are not many good [public-private] projects seeking financing, especially in Europe,” Fitch said. “The amount of available capital means there is a risk that structurally or economically weaker projects attract financing and further impair the development of the sector.”