Development & Human Rights • 16 Feb 2016
A Growing Threat on Debt: the New Global Infrastructure Agenda
Here’s the second of our analysis papers on the new global infrastructure agenda, this time focusing on the debt risks linked to the current promotion of mega-corridors of large-scale infrastructure projects.Back to overview
As the world economic crisis of 2008 pushed leaders to find renewed recipes for growth, jobs and prosperity, large infrastructure projects appeared as the perfect solution to trigger a new wave of investments and, consequently, of revenues.
However, large-scale infrastructure development often generates major negative impacts. Ranging from environmental to social and human rights issues, mega infrastructure investments raise wider development and macroeconomic concerns when it comes to the actual beneficiaries of these projects, to their contribution to poverty eradication in the long-run, or the risk to generate dependency from exports and Dutch disease.
Such an approach poses a dilemma for developing countries’ future choices. Indeed, beside the consequences of the projects for affected local communities, the billions and trillions investments in infrastructure entail high debt sustainability risks. Assuming that they will generate sufficient return, governments are pushed to accept further indebtment in order to finance infrastructure projects.
Furthermore, the new global agenda on infrastructure relies largely on Public-Private-Partnerships (PPPs) which are themselves an aggravating factor for debt creation. This financing tool, promoted by governments as a way to circumvent legislated budgetary limits imposed by austerity measures, has well-documented cost and fiscal implications, and poses a dangerous threat to the economic sustainability of projects.
This paper explores how such financial mechanisms transfer financial costs to government’s future debt or directly to the citizens, hence “socializing costs and privatizing profits”. It further aims at raising awareness of the challenges linked to this infrastructure agenda, for civil society to tackle emerging challenges in this field.
The other analysis papers: