How can governments build much needed roads without going into huge public debt? ADBI's first animated short explains a new budget-neutral way to attract private investors for infrastructure.
Lets build a highway!
Countries need infrastructure to grow but there's not enough local savings.
Instead of government running up more public debt, it is better if overseas and private investors loaned their own money for the costs of constructing a new highway.
ADB Institute has calculated the spillover effects from infrastructure investment.
When a highway is built many businesses become established along the route to sell products to passing traffic increasing employment and wealth in the region. As small business, such as restaurants and shops, expand next to the busy highway and pay their taxes.
The impact of this is called the spillover effect.
If just a small share of new taxes raised were set aside in a separate trust fund that money would quickly grow for the benefit of paying back the private investors.
When part of these spillover effects are returned to the original investors their overall rate of return will be much higher making them more willing to lend in the first place and provide the necessary private finance for better public infrastructure.