Policy Brief

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Task Force 8

Inclusive, Resilient and Greener
Infrastructure Investment and Financing

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Shamshad Aktar (Pakistan Stock Exchange)
Naoyuki Yoshino (Keio University)
Alessandro Gili (Italian Institute for International Political Studies)
Filippo Fasulo (Italian Institute for International Political Studies)
Alberto Rizzi (Italian Institute for International Political Studies)
Carlo Secchi (Italian Institute for International Political Studies)
Nicolas J.A. Buchoud (Grand Paris Alliance for Metropolitan Development)
Murat Kenanoglu (Economic Policy Research Foundation of Turkey)
Iskandar Abdullaev (CAREC- Central Asia)
Milindo Chakrabarti (Centre for Sustainability, OP Jindal Global University)
Teuku Riefky (Institute for Economic and Social Research, University of Indonesia)

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1Abstract
Global cooperation regarding future infrastructure systems is key to building up andimplementing a successful pandemic “exit strategy” that addresses short and longerterm sustainability and development priorities, globally and locally. It is necessary toenhance the contribution of long-term investors and the private sector in infrastructure
investment, as underlined by the joint commitment of the D20 – Long-Term Investors Club(D20 – LTIC), Business 20 (B20) and Think 20 (T20) in 2021 and 2022. The Group of 20
infrastructure space has to adapt, both in terms of objectives and governance, to meet achallenging context.
Several international infrastructure plans have been promoted in the last decade, such as
the G20 Seoul plan (2010) or the Chinese Belt and Road Initiative (BRI) in 2013, but the
pandemic crisis has accelerated the global geopolitical infrastructure competition, an
issue redoubled by the impacts of the war in Ukraine. The Group of Seven has initiatedthe Build Back Better for the World (B3W) process in 2021 and launched in 2022 a Global
infrastructure partnership. The European Union has created its Global Gateway, andmandate to European Investment Bank (EIB) to create a new global branch to support itinternationally. The United States has engaged into its own trillion-dollar infrastructure
plan and other plans have emerged such as the Central Asia and South Asia connectivity.
Whereas the Italian G20 presidency stressed the importance of ensuring quality
infrastructure that can help carbon neutrality targets, especially through partnerships
between the public and the private sectors, growing geopolitical divides might weaken
the potential of infrastructure investments to support environmental and social standards
for a new sustainable economy.
Channelling investments to emerging and developing economies is a pressing global
strategic issue, whereas many countries are confronted with high debt costs and inflation
rates that hinder their capacity to invest in a just energy and net zero transition. Hence, aquality and enduring dialogue among regional and global infrastructure investment
initiatives across the G20 Indonesia and the G20 India and the G7 Germany and G7 Japan,
is necessary to meet enlarging infrastructure finance gaps and foster an effective andinclusive system change.

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2Challenges
The infrastructure space organisation within the G20 still largely dates back to the 2014
Australian presidency, out of the 2010 Seoul development consensus. This policy brief seeks tostrengthen early-stage policy dialogue and coordination on infrastructure at multilateral andregional levels in the new context created by the COVID-19 pandemic and ensuing multiple andoverlapping crises. Assessing whether cooperation is possible among international
infrastructure plans is relevant to addressing some of the main tasks of the policy areas selectedby the Indonesian G20 presidency, such as “Establishing equitable risk allocation in
infrastructure”, “Improving governance in major infrastructure projects” and “Managing andfinancing local and social infrastructure development”.
The importance of ensuring quality infrastructure has been widely recognised in internationalfora, from the G7 in Japan in 2016, to the Italy’s G20 presidency in 2021. Despite a growing
awareness that investing in reducing the infrastructure gap between economies at the global
level can promote a virtuous circle towards interlinked development goals, promoting this effort
in the absence of effective global coordination could result in a less efficient use of resources
and lower local spillover effects, in a context of rising environmental challenges and social
inequalities.
The pandemic has laid bare systemic underinvestment in social infrastructure following the2008 global financial crisis. The absence of global cooperation in the development of future
infrastructure investments could result in digitalisation – which was itself accelerated by the
pandemic – widening social capital gaps across the globe. Similarly, the consensus on the needto channel resources from advanced economies towards creating a sustainable growthmechanism for middle- and lower-income economies has to be strengthened; otherwise, thecurrent debt crisis could hinder emerging and developing economies’ investment capacities. The
G20 infrastructure governance started to evolve in 2021 to address multiple pre-and post-crisis
macroeconomic and geopolitical challenges, but change needs to be pushed forward. After the
pandemic, the war in Ukraine highlights the fragility of global interdependence. A geopoliticalshock in a region can affect not only the surrounding areas, yield far reaching global impacts
such as on energy and food markets, or supply chains. Food chains, both local and regional, arein fact extremely sensitive to shocks and often rely on poor-quality infrastructure in rural areas.
Investing in food production and storage infrastructure, as well as energy and the cold chain,
could significantly increase the resilience of countries vis-à-vis food supply shocks, while also
fighting hunger and food poverty (Hallegatte et al., 2019).

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In order to limit the negative impact of potential shocks – pandemic, economic, environmental
or geopolitical – resilient and efficient infrastructure is essential, and standards play a crucialrole in this endeavour (OECD, 2021). However, a new approach to infrastructure standard should
emerge to overcome the gridlock caused by the systemic lack of ‘bankable’ projects, especiallyin emerging and developing countries.
The G20 has a long history of promoting multilateral infrastructure investment plans, with initialcommitments dating back to the Seoul Summit in 2010, where the G20 came together to deliver
sustainable growth after the global financial crisis that followed the global financial crisis (G20,
2010). Given the high growth potential of infrastructure investment and the role played by the
infrastructure endowment in long-term growth, the G20 as we know it has sought to facilitate
coordination and the sharing of best practices. Hence a Global Infrastructure Hub (GIHUB), wascreated in 2014 and intended as a knowledge sharing and implementing tool for thedevelopment agenda. Its role has largely been an advisory one, with limited impacts on key
decisions. It has mostly provided governments with compiled data from international financial
institutions and advocated for more private sector investors engagement along existing ESG
standards. What has been lacking from G20 members such as within the ministerial
Infrastructure Working Group (IWG) has been a common and comprehensive approach towards
infrastructural plans, articulated with a wider vision of sustainable finance, especially for
emerging and developing countries.
Most of the initiatives put forward in the last decade have been initiated by individual countries
or by small groups, each with its own set of standards and priorities. The most notable examples
are the BRI, launched in 2013 along with the creation of the Asian Infrastructure Investment Bank(AIIB), Japan’s Partnership for Quality Infrastructure (2016, 2019) and the US International
Development Finance Corporation, founded in 2019 with the aim of including private investors
in US development missions abroad. More recently, the QUAD framework – involving four G20
members: the US, Australia, India and Japan – has launched an infrastructure cooperation groupto support high-quality projects, primarily in the Asia-Pacific region. Finally, yet another G20
member, the EU, has devised its own initiative, the Global Gateway. The EU project focuses onsustainability and decarbonisation but also on social responsibility and transparent governance.
This European framework intends to leverage 300 billion euros ($306.37 billion) to support
connectivity projects, especially in the Indo-Pacific region and in Africa (EU Commission, 2021).
Only a limited number of initiatives have instead been characterised by an approach based on alarger framework, bringing together different G20 members and other economies. The AsiaPacific Economic Cooperation (APEC) Multi-Year Plan on Infrastructure Development andInvestment (MYPIDI), launched initially for the 2013-2016 period, sought to enhance theinfrastructural environment of the Pacific region by identifying guidelines for a common
approach by member states. Another global initiative has been the Global Infrastructure Facility
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(GIF), established in 2014 by the G20 with the support of the World Bank to boost theparticipation of private investment in sustainable and quality infrastructure, especially indeveloping countries. So far, it has helped channel over $76 billion in infrastructural investments
around the world, of which $52 billion coming from private investors. Its sectoral focus has been
primarily on transportation (41 percent of total investments) and energy (40 percent), while
regionally almost a third of its projects (29 percent) have been in Africa. Despite its roleremaining mainly an advisory one, it has had impacts on the entire pipeline, from the planningphase to the financing one. Its numbers, however, not only fall short of the actual investment
needs but also pale in comparison with the resources leveraged by the initiatives involving single
states or smaller groups mentioned above. The BRI alone has provided since its inception morethan $800 billion to support infrastructural projects abroad, while in 2021 the European
Investment Bank (EIB) alone financed 94.89 billion euros (EIB, 2022).
The sheer number of different infrastructure initiatives launched in recent years provides afragmented and complex global picture. Institutional actors and private investors would have a
hard time choosing which framework best matches their priorities and objectives. In addition,
each infrastructure plan stems from the vision of the countries supporting it. While the EU Global
Gateway is strongly related to European decarbonisation objectives and has a clear priority insupporting the energy transition, the BRI has only recently stopped financing coal projects. In aworld that seems to be heading if not towards a deglobalisation, at least towards an increased
regionalisation of production and value chains, cooperation and interdependence between
regional partners becomes critical to achieve global climate, environmental and development
goals. In such a scenario, quality infrastructure with compatible standards between members
would be essential to exploit the full potential of regional economic integration. A re-shoringprocess, with shortened supply chains, can also represent an opportunity for partners and local
communities that had been overlooked by investors in the past, opening new growth paths inless advanced areas. Yet, to take the most advantage of such an opportunity, infrastructuralinvestments would need to be based on clear quality principles and on effective sustainability
standards, helping countries meet their targets of lower emissions and net-zero pledges. This isexemplified for instance by the launch of the Just Energy Transition Mechanism (JETM) andpromotion of the related Country Platforms by the G20 presidency of Indonesia. Meanwhile, theG7 Germany presidency has endorsed the proposal of a global climate club gathering public andprivate partners in the form of a ‘coalition of willing’ to address the most pressing global
warming needs.

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Proposals for G20
In 2021, the Italian G20 presidency stressed the importance of delivering sustainable andinclusive growth and reaffirmed the G20’s responsibility in this regard (G20, 2021). Since 2020
and the Covid-19 pandemic outbreak, public health systems, including unequal access tovaccines, combined with public support to investment, have represented the main factor behind
an uneven recovery. In 2022, the level of exposure to the ongoing war in Ukraine and, mostimportantly, the limited fiscal/liquidity cushion to absorb the shock are the main drivers ofdiverging growth. In such a scenario, the G20 is an essential political arena to avoid food anddebt crises, which would otherwise trigger instability, uncontrolled mass migrations and fuelgeopolitical tensions.
Promoting effective quality infrastructure helps increase the resilience of countries vis-à-vis
these crises and contributes to liberating the full growth potential of economies. The UN has
estimated that around 1.2 billion people live in countries that have a significant or severe
exposure to food, energy and financial risks (UN, 2022). Additionally, the share of government
bonds over total bank assets in emerging markets has reached 17 percent, creating a dangerous
environment should governments, especially in vulnerable regions, be unable to meet their
obligations (IMF, 2022). Global growth has once again been revised down, to a mere 3.6 percent
output increase for both 2022 and 2023. In such a scenario, the improvement of economic
resilience is imperative and infrastructure investment plays a key role in this regard. However,investment trends remain far below needs, with an estimate total investment in 2022 of $2.8
trillion, roughly 500 billion short of the necessary $3.3 billion (GIHUB, 2022). The G20 could
ensure the best possible use of these resources, in particular by agreeing on ways to avoid
economic, social and environmental risks caused by ineffective investment dynamics, primarily
fragmentation and overlap. In that context, we argue that public and private stakeholders
engaged in the G20 infrastructure space should drive change and innovation in light of thelessons learned from the pandemic and at a time where more, high-quality dialogue among
competing infrastructure plans is necessary to keep critical climate and development agendas
afloat.
This policy brief is intended as a first step towards a new approach to the ongoing global
infrastructure competition. First, by identifying overlaps and duplications. Second, by finding
which forms of coordination are possible among the infrastructure plans launched by the major
economies in recent years. The analysis will take selected regions in developing and emerging
countries as case studies.

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This process ought to be continued in 2023 to explore the establishment of new and improved
coordination platforms and mechanisms at a global level to gather international organisations
and donors, development agencies and the private sector. The aim is to select major
infrastructure projects that may benefit from a coordinated effort of major international
infrastructure plans and maximise the transformational benefits at the national and local levels.
The ultimate goal lies in the reduction of the increasing infrastructure gaps worldwide, throughquality infrastructure investments that help the energy and low carbon transition. In order toachieve this, decreasing perceived risks is key to spurring new flows of private infrastructure
investments and inaugurating bolder public-private cooperation.
In light of mounting global warming risks, in-depth coordination is crucial to enhance theefficiency and profitability of infrastructure investments, reduce countries’ carbon footprint anddeploy new technologies. Particular attention will be paid to improving spillover for local
communities and the benefits of a multilevel governance.
The current situation of competing infrastructural plans, based on different – and sometimes
conflicting – standards and elaborated with distinct priorities and procedures bears multiple
risks both for investors and the countries involved. This complex scenario does not provide an
optimum, neither in terms of economic efficiency nor regarding development prospects fordestination countries. Analysing the current pattern of initiatives, we have pinpointed two main
dynamics that present serious risks to infrastructural development, fragmentation andoverlapping. Tackling them would be essential to ensure the most effective use of the available
resources: considering the widening investment gap and the huge financing needs, the G20
should strive to secure effective use of resources. This gap is likely to increase even further due
to the various decarbonisation objectives that countries all around the globe are setting as theirnational priorities. Yet, while developed countries have relatively large fiscal margins to achievethem, developing and least-developed economies would struggle without G20 assistance.
Fragmentation in infrastructural plans can be defined as the coexistence of plans “belonging” todifferent infrastructural initiatives, each with its own set of standards and requirements.
Fragmentation can be both regional and national.
While the dangers of national fragmentation, the presence of infrastructure financed and built
under different conditions and rules, are rather intuitive – namely the low prospects forinteroperability between incompatible or diverging standards – regional fragmentation deserves
more attention. In light of the increasing regionalisation of trade and investments, effective
connectivity between countries is imperative in order to fully develop a region’s growth potential.
Yet, if different countries follow different infrastructural standards due to being part of diverging– when not directly rival – infrastructural initiatives, economic development would remainhindered by limited integration. Reduction in tariffs are hardly sufficient to promote trade whenincompatible standards would impair material procedures and force exporters and importers to
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pay hihger prices and adapt to different regimes. Parallel to this, fragmentation also risks
widening the gap, both regionally and internationally. Countries being targeted by lower-quality
initiatives, be in danger of finding themselves left behind if regional partners develop higher
quality standards for infrastructures. In such a scenario, countries that investors consider more
profitable and less risky would receive not only more resources but also connectivity
endowments with higher standards, while the others would be left behind. This would increase
the infrastructural gap of less developed economies both on a global and regional framework:
areas lacking access to higher-quality infrastructure initiatives would be less involved in tradeand economic cooperation, with their growth potential remaining largely untapped and theiraccess to global markets significantly impaired.
An example of fragmentation and diverging standards that still affect Europe is represented by
the different railway gauges in use within the EU. While most of the continent now uses thestandard 1.435 millimeter gauge, several member states have different tracks: the Baltic
countries still have the Russian one (1.520 mm) – Rail Baltica would only partially solve theissue, since national railways would retain the old standards – while Portugal and Spain largely
use the Iberian gauge (1.668 mm). Gauges of different widths create significant interoperability
challenges at a time when railways are increasingly important as a low-carbon transportationmode, and the TEN-T corridors are being completed within the EU. High-speed and main lines
are being constructed on the common standard, but the high level of diversification within
secondary lines would still represent an issue in the years to come, requiring different trains andlimiting the potential of the common market. The same pattern is replayed in different areas of
the world, especially in Asia, where rail gauges diverge significantly between borderingcountries. This creates additional costs for operators and underlies the necessity for a common
standard to be adopted, one that can allow for high interoperability and better connects
countries, markets and people. Beyond gauges, operating, signalling and safety systems would
also require compatible – if not identical – standards to operate effectively in cross-borderfreight and passenger lines (ERA, 2021).
On the opposite end of the spectrum is the risk of overlapping. This could happen when different
infrastructural initiatives, lacking coordination and competing to implement the most significant
projects in a country or a region, end up constructing more infrastructure than effectively
needed. While this competition could appear benign – the more infrastructure, the better – itpresents significant challenges. First, an uncoordinated and non-interoperable infrastructuraldevelopment within a country would constitute an inefficient allocation of resources, a scenariothat would not bring about the full potential of connectivity projects. Two similar port facilities
constructed in the same area by different initiatives would not enhance a country’s endowment
as much as a single, larger-scale and better-developed one.

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8The scarcity of the available financing for infrastructural projects in the neediest parts of theworld, often the same ones deemed less profitable by private investors and whose governments
lack adequate fiscal space to support development, requires the G20 to ensure that they be
employed in the most effective way, without useless duplication. Infrastructural financing would
be best employed where it can make the greatest impact in terms of growth and the integration
potential of a country in the global economy, not in similar projects that could end up underused
because of their redundancy. Additionally, the functioning and maintenance, especially longterm, of excessive competing infrastructure would constitute a significant burden, in particular
for the poorest countries, either preventing them from investing in other assets or forcing themto neglect infrastructural maintenance due to other spending needs.
The COVID-19 pandemic has significantly worsened the budgetary stance of middle- and lowerincome countries, diminishing their fiscal margins and increasing their debt burden – as well as
the servicing costs. It thus becomes imperative to provide them with the adequate
infrastructural endowment necessary to catch up with the rest of the world and benefit from theglobal economic recovery. To do so, new financing frameworks should be constructed, providing
both destination countries and investors with a clear picture of the available options. At the sametime, a minimum level of convergence between G20 members should be reached in order toagree on a basic set of shared standards for all infrastructural initiatives targeting developing
and least developed countries. In this regard, we welcome the G7 pledge, made at the Elmau
Leaders’ Summit in June 2022, to mobilize 600 billion dollars in both private and public funds tosupport infrastructural projects in developing countries. Nonetheless, it is necessary to point out
that such a scheme should remain as open as possible to non-G7 countries’ participation and it
would be best be complementary rather than competing with other schemes, to avoid
fragmentation and overlapping risks. Finally, it has to be considered that the pledged resources
largely come from pre-existing initiatives and thus do not constitute new financing but are
mostly a reorganization of already allocated funds.
The G20 remains the most relevant framework to build such a consensus. Last year in 2021, theRome Leaders’ Summit stressed once again the importance of sustainable infrastructure, as
well as the need to exploit the grouping’s full potential to ensure a complete global recovery.
Building on the G20 Roadmap for Infrastructure as an Asset Class, the G20 Rome declaration
supports the progress of the G20 Principles for Quality Infrastructure and extends the mandateof GIHUB. Following those guidelines, we propose a minimum agreed classification of quality
and sustainable infrastructural investments to be shared by G20 members, and potentially open
to any other country. This classification should function in a similar way to a taxonomy, listing
what types of infrastructural investments would be considered sustainable and fully compatible
with the G20 agenda.

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9While we acknowledge the different priorities and preferences within the G20, we nonethelessstress the importance of reaching a common position that would hopefully operationalise the2019 Osaka Principles. In fact, these principles are not yet directly translatable in practice andwould greatly benefit from a classification rendering them directly applicable to future projects.
The GIHUB could contribute in the future to establish such a classification.
A common G20 infrastructural taxonomy would also help investors and countries to easily
identify financing options. This would contribute to transforming the current scenarios ofcompeting and overlapping initiatives into a clearer and simple picture, allowing stakeholders toquickly assess the available options and their requirements. However, common standards alone
would not be enough: a common financing framework is needed to regroup the number of
initiatives under the same umbrella. The best option would be a single common facility by G20
members functioning as a sort of international development institution financing infrastructuralprojects that fulfil a G20 common criteria and bring private investors to support development in
middle- and lower-income countries. Effective involvement of private investors is crucial formobilising an adequate amount of resources to effectively bridge the investment gap affecting
developing and least developed economies. However, infrastructure investments have a long
history of diffidence due to their higher risk, especially when concerning fragile or emerging
countries. To overcome this diffidence, a common financing facility should be provided withderisking tools and mechanisms that would lower the perceived risks for private investors,
ultimately boosting private investments in infrastructure. In order to do so, public contribution
and guarantees by G20 member states would be essential.
An effective shared facility should provide the incentives to bring G20 members together tocooperate on the same projects, diminishing the attractiveness of competition and raising theappeal of cooperation. To do so, we have envisioned a premium mechanism that would benefit
shared projects: in a co-financing scenario, where the resources provided by the facility are ashare of the total – we envision a situation where the private sector would supply the bulk of thenecessary financing – such a share should be increased depending on the number of G20
members cooperating in the same project. As an example: financing an infrastructure project
backed by one single G20 country would receive only the base share of public financing by theshared facility, with the share increasing for each additional country participating. This would
make common projects more appealing to private investors, since they not only would becheaper but also faster in their pipeline because of the smaller quota of resources to be obtained
from markets. Additionally, more participating states would increase the overall quota of public
co-financing, significantly diminishing the risk related to an investment.
A significant step in this direction has been taken at the G7 Summit in June 2022, whereby theGerman Chancellor O. Scholz successfully introduced the concept of a “climate club” as a
strategic direction for the future of the G7. Such a move could indeed yield greater cooperation
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on sustainability within the G7, and beyond it, which is essential for the shared recognition andadoption of new development standards. This idea builds upon a previous 2021 document fromthe German Finance Ministry aiming at the establishment of a framework between countries
with the most ambitious climate pledges, with climate neutrality pledges by 2050 at the latest(German Finance Ministry, 2021). The club is by no means a closed one, yet some G20 members
have climate pledges going further in time and are potentially excluded from this initiative, which
could create potential disruptions and hinder the achievement of shared infrastructural action.
In this regard, the Indonesian presidency has taken concrete steps to scale-up ambition andcooperation in the field of sustainable finance, including infrastructure finance. We propose tocontinue and develop the proposals introduced by the present policy brief in the context of the
G20/T20 India and of the G7/T7 Japan and to invite additional stakeholders from different
regions to join in.

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References
N. Yoshino and U. Buddhadev. 2017. An Impact Evaluation of Investment in Infrastructure: The
Case of a Railway Connection in Uzbekistan. Journal of Asian Economics. 49 (1). pp.1–11.
N. Yoshino and V. Pontines. 2015. The Highway Effect on Public Finance: Case of the STAR
Highway in the Philippines. ADBI Working Paper Series. No. 549. Tokyo: AsianDevelopment Bank Institute.
European Union Agency for Railways, 2021. Annual Overview for Interoperability. France:
European Union Agency for Railways.
Federal Finance Ministry, 2021. Steps towards an alliance for climate, competitiveness andindustry – building blocks of a cooperative and open climate club. Berlin: Federal Ministryof Finance.
Global Crisis Response Group. 2022. Global impact of war in Ukraine on food, energy and financesystems. Brief No. 1. Geneva: UNCTAD.
World Economic Outlook. 2022. War Sets Back Global Recovery. Washington: International
Monetary Fund.
OECD, 2021. Building resilience: New strategies for strengthening infrastructure resilience andmaintenance. OECD Public Governance Policy Papers, No. 05. Paris: OECD Publishing.
S. Hallegatte, J.Rentschler and J. Rozenberg. 2019. Lifelines: The Resilient Infrastructure
Opportunity. Sustainable Infrastructure. Washington, DC: World Bank.
G20. 2010. The G20 Seoul Summit Leaders’ Declaration. Seoul: G20.
N.J.A.. Buchoud, L. Arthur, X. Bai, M. Chakrabarti, M. Cohen, E. Croci, P. Dey, C. von Haldenwang,
H. Kuhle et al., (2022) A G7 infrastructure club – mobilizing the transformative power ofcities to support multilateralism and the agenda 2030 in post-Covid G7/G20. Policy briefeditedbytheT7
Germany.
https://www.think7.org/wpcontent/uploads/2022/05/Cooperation_A-G7-Infrastructure-Club-Mobilizing-theTransformative-Power-of-Cities-to-Support-Multilateralism-and-the-Agenda-2030-in-PostCovid-G7_G20_Buchoud-et-al.pdf

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Annex
Proposals to address the failure of public-private partnerships (PPPs) in infrastructure
projects and the post-crisis fiscal challenge in Asia
Recently, the world has witnessed several attempts to stimulate private sector financing forinfrastructure investments. However, many of those public-private partnership (PPP) projects
were not very effective. The regions that have experienced the greatest difficulties have been
Latin America and some Asian countries. The main reasons behind those failures are primarily
related to the revenue side of infrastructure investment. The revenue from infrastructure, suchas railways, water supply or electricity, comes primarily from user charges or user fees.
Considering users’ preferences for lower fees and the private investors’ desires for a high rateof return, there are internal conflicts between the two sides.
This proposal aims to address these conflicts between users and private investors by exploring
another source of revenue deriving from infrastructure investment. I focused my attention on
the spillover effects of infrastructure investment. Spillover tax revenues created byinfrastructures will constitute a good source of revenue in addition to user charges. Good-quality
infrastructure, in fact, creates a huge positive spillover effect within a region; for instance, cleanwater supply can bring new residential districts, shopping malls, restaurants, factories andbusinesses. As a result, the amount of tax collected from the property, corporate and individual
income as well as sales will inevitably rise. If infrastructure companies only rely on user charges,
then these must be increased to secure a high rate of return for investors in infrastructure,
discouraging users. Sharing part of the spillover tax revenues collected by the government with
the investors would represent a better option, allowing users to benefit from lower charges andinvestors to still obtain a high rate of return. A potential optimum would be a 50 percent shareof investors’ return coming directly from charge, with the remaining 50 percent coming from tax
revenues increased by the infrastructure.
Asia already presents some interesting examples of spillovers. In the case of Uzbekistan’s
railway (Table 1), the economic growth in the non-affected region changed from 8.3 to 8.5
percent, which is only 0.2 percent growth. On the other hand, the region along the railway –theaffected region – showed a 2.2 percent growth in gross domestic product (GDP) from 7.2 to 9.4
percent. The two regions showed a 2 percent difference in their economic growth. Therefore,
the railway produced a 2 percent increase in GDP as a result of its spillover effects comparedwith other regions, which created huge tax revenues for the government. Detailed analysis canbe seen in Yoshino and Abidhadjaev (2017). In the case of the highway in Manila city (Table 2),
tax revenues in three cities along the highway received about three times as much tax revenue
after the fourth year of operation (Yoshino and Pontines, 2015). This shows a significant
increase in tax revenues after four years of operation (t+4).

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Table 1. Numerical estimation of the difference-in-difference coefficient using regional data for
Uzbekistan, 2005–2008 and 2009–2012
Post-railway
periodDifference

Non affected Average
GDP 8.3
group
growth rate (%)

8.5

0.2

Affectedgroupa9.4

2.2

Region group

Pre-railway
periodOutcomeAverage
GDP 7.2
growth rate (%)

Difference

2.0

GDP = gross domestic producta Affected group includes the regions of Samarkand, Surkandharya, Tashkent and the Republicof Karakalpakstan.
Source: Yoshino and Abidhadjaev (2017).

Table 2. Calculated increase in business tax revenues for the beneficiary group relative to nonbeneficiary group 4 for the Manila Railway (million pesos)
Construction
Period

T-2

T-1

T

T+1

T+2

T+3

T+4

Lipa city

134.36173.50249.7
0184.47

191.8
1

257.3
5

371.93

Ibaan

5.84

7.04

7.97

6.80

5.46

10.05

12.94

622.65652.8
3637.83

599.4
9

742.2
8

1209.6
1

RegionBatangas city 490.90

Source: Yoshino and Pontines (2015).

Therefore, a spillover tax revenue approach can be applied not only to hard infrastructure but
also to soft projects such as the internet and mobile connectivity. This is important in order toaddress current fiscal challenges or budget deficits after the COVID-19 pandemic, where
governments alone cannot provide enough infrastructure financing in the region. They have toattract private investors to top up the available public resources.

OVERLAPPING, COMPETING OR COMPLEMENTARY. COMPARING
INTERNATIONAL INFRASTRUCTURE PLANS TO FOESTERNATIONAL DEVELOPMENT AND INTERNATIONAL COOPERATION

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Financial education to promote the supply of funds for infrastructure investments
The Organisation for Economic Co-operation and Development (OECD) started stressing theimportance of financial education about 10 years ago. The Asian Development Bank Institute(ADBI) and the OECD worked together to spread awareness about financial education in various
countries in Asia. In Asian countries, savings are primarily directed to bank deposits, and, eventhough a large share of the population is familiar with stock markets, other financial products
like mutual funds or pension schemes are still relatively unknown. Even products like life
insurance or casualty insurance – not to mention vehicle insurance – are often overlooked. Yet,investments in insurance by financial institutions could provide important support for
infrastructure development by private actors. Long-term institutional investors such as
insurance and pension funds can invest in infrastructure where a higher rate of return would besecured by receiving part of spillover tax revenues. Long-term domestic investments can also
move within the country to promote infrastructure finance, a dynamic that will be able to achieve
higher economic growth.

OVERLAPPING, COMPETING OR COMPLEMENTARY. COMPARING
INTERNATIONAL INFRASTRUCTURE PLANS TO FOESTERNATIONAL DEVELOPMENT AND INTERNATIONAL COOPERATION

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