Financing Long Term Investment: The Case for Public Sector Involvement

Traditionally, public sector involvement in infrastructure projects has been large. More recently, pre crisis abundant liquidity lead to blur the specificities of long term investment projects (undertaken by public and private sponsors). However, the financial crisis shed a new light on these specificities while public sector involvement has been reconsidered from a normative perspective and challenged by a tighter fiscal constraint and the search for a more efficient intervention. This questioning brings forward four dimensions in the public sector involvement: it has the responsibility to ensure that a proper socioeconomic evaluation of the project has been conducted; it can provide public financing and subsidise the project (when the socioeconomic evaluation concludes positively that the project is worthwhile but the return from a private sponsor perspective would be to low to undertake it); it could help coordinate the various stakeholders and need to tailor its interventions in that respect; it could provide a suitable regulatory and supervisory framework for a new asset class to develop and attract other investors while ensuring a proper handling of associated risks.