Risk Mitigation and Sovereign Guarantees for Public–Private Partnerships in Developing Economies
Abstract
Description
This paper shows how multilateral development bank-issued guarantees benefit public–private partnership investments by reducing sovereign risks.
Private investors are concerned about the creditworthiness of public–private partnership (PPP) projects in Asia because a large percentage of developing countries are considered risky counter parties. This paper examines the application of credit enhancement, such as letters of credit and partial risk guarantees, and attempts to quantify the benefits of these instruments. It presents the main risks of infrastructure investors in Asia, the severity of which vary by specific project conditions, and the complementary roles of governments and multilateral development banks in mitigating these risks.