Risk Mitigation and Sovereign Guarantees for Public–Private Partnerships in Developing Economies | Asian Development Bank

Risk Mitigation and Sovereign Guarantees for Public–Private Partnerships in Developing Economies

Publication | November 2018
Risk Mitigation and Sovereign Guarantees for Public–Private Partnerships in Developing Economies

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.

Contents 

  • Introduction
  • Risks in Investing in Infrastructure Public–Private Partnerships
  • Government Support to Reduce Risk in Infrastructure Public–Private Partnerships
  • The Role of Multilateral Development Banks in Sovereign Risk Mitigation
  • Estimating the Benefits of a Multilateral Development Bank Partial Risk Guarantee
  • Conclusion and Policy Implications
  • Appendix: Analytical Framework