Infrastructure Finance in Armenia
In order to sustain economic growth, Armenia needs to invest in infrastructure – much of this on a commercial basis given the limited fiscal space available and high level of public debt. The private sector has actively participated in infrastructu...
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| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/575401530192599240/Infrastructure-finance-in-Armenia-policy-note http://hdl.handle.net/10986/30271 |
| Summary: | In order to sustain economic growth,
Armenia needs to invest in infrastructure – much of this on
a commercial basis given the limited fiscal space available
and high level of public debt. The private sector has
actively participated in infrastructure investment in
Armenia, notably by way of divestiture, concessions, lease,
and management contracts. Beyond direct state funding from
current tax revenues, infrastructure investment can be
commercially financed through a mix of (a) public finance
(borrowing guaranteed by the state), (b) corporate finance
(loans to corporate borrowers), (c) project finance (loans
to project companies repaid from future cash flows).This
entails, successively: (i) identifying whether parts of an
infrastructure development program can be financed on
commercial terms; (ii) when commercial financing is not
viable, undertake upstream reforms to strengthen policies,
regulations, institutions and capacity; (iii) if reforms are
not sufficient, explore the possibility of deploying
concessional and public resources to strengthen the
bankability of priority investments; and finally (iv) where
commercial financing is not feasible despite sector reform
and risk mitigation, mobilize public and concessional
resources. Armenia’s infrastructure finance agenda touches
upon three key dimensions: (a) the origination of an
abundant, mature pipeline of bankable infrastructure
projects, (b) a business climateconducive to commercial
investment in infrastructure, and (c) the availability of
long-term financing for infrastructure projects. The country
needs to systematize its pipeline of infrastructure projects
and strengthen the origination of transactions. The existing
regulatory framework needs to incorporate specific
provisions for PPPs, and practices need to be improved.
Going forward, financing from multilateral and bilateral
sources will need to be complemented by other sources,
notably international and domestic commercial banks. Local
banks have increased long-term lending in recent years, but
still only have limited involvement in infrastructure
finance. Internationally, states have attempted various
types of interventions in support of infrastructure finance.
First, the state may support priority projects that are
economically viable, but whose financial returns are not
high enough, or are sufficiently predictable, to attract the
interest of private sector investors. Such schemes,
involving financial viability support (FVS), are generally
incorporated in the host country’s PPP framework, and can
take different forms, such viability gap funds (VGF) and
availability payment (AP) schemes. Given the size of the
economy, and the dearth of bankable projects, priority
should be given to assessing the feasibility of financial
viability support, and possibly wholesale financial
sectorinterventions, rather than retail interventions. |
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