Abstract: The infrastructure investment gap in emerging markets poses significant challenges to economic and social development, with wide-ranging impacts. The urgency to address this gap has reached unprecedented levels.
Traditional methods of infrastructure financing are no longer sufficient to meet current needs, especially given limited fiscal space. As a result, a variety of innovative financing tools have emerged to bridge this gap, including Public-Private Partnerships (PPP), credit enhancement, partial credit guarantees, construction insurance, political risk insurance, liquidity enhancement mechanisms, sustainability-linked loans/bonds, capital market solutions, blended finance, impact investing, and development finance institutions. These innovative tools and approaches represent a paradigm shift in infrastructure financing and offer promising avenues to close the infrastructure gap and help emerging markets unlock their full economic growth potential.
Multilateral development banks play a crucial role in narrowing the infrastructure gap in emerging markets. The long-term financing, concessional loans, technical assistance, and capacity-building support they provide are essential for facilitating project implementation. Expanding local currency financing is one of the key strategic goals of these development banks. Local currency financing, as a means of reducing exchange rate risks, enhancing financial stability, and supporting the development of domestic capital markets, serves as a powerful tool for addressing infrastructure financing challenges.
