Financing Infrastructure – New Normal, New Technologies, New Financing

Jakarta, Indonesia. Photo by Airlangga Jati via Unsplash.

Fallout from the COVID-19 pandemic and Russia’s war in Ukraine have exacerbated a large divergence in development due to the uneven recovery from the health crisis, looming stagflation and the global climate crisis. For emerging markets and developing countries (EMDCs), outlook remains dampened by the lasting legacies of the pandemic, including the erosion of skills from lost work and schooling, a sharp drop in investment, higher debt burdens and greater financial vulnerability. 

As part of the Group of 20 (G20) Indonesia 2022 report ‘New Normal, New Technologies, New Financing, Justin Yifu Lin and Yan Wang address barriers to overcoming inadequate financing for infrastructure and provide proposals for international cooperation in a post COVID-19 world toward green financing, patient capital and equity financing. 

Key recommendations:
  • In view of the huge infrastructure financing gap, Lin and Wang argue the post-pandemic agenda is clear: countries must prioritize infrastructure, consistent with a country’s nationally determined contributions (NDCs) and the UN 2030 Sustainable Development Goals (SDGs), to tackle country-specific infrastructure bottlenecks.
  • The G20 Summit in November 2022 should call on all partners, including the private sector, not to finance new coal-fired power plants in any part of the world.
  • The G20 should play a leadership role in proposing new initiatives and coordinating global efforts, like possibly using part of the $650 billion in Special Drawing Rights (SDRs) allocated by the International Monetary Fund (IMF) to establish a global green finance fund for green infrastructure. 
  • The G20 should strengthen its support for multilateralism, including for existing multilateral development banks (MDBs) and funds, as well as newly established MDBs, like the Asian Infrastructure Investment Bank and the New Development Bank.
  • G20 leaders, the IMF, MDBs, rating agencies and development practitioners should consider a country’s key infrastructure, such as water, electricity, transportation hubs and telecom centers, as a country’s core capital.
  • Innovation is needed for both debt relief and green transformation and Lin and Wang call on international financial institutions to take more responsibility in supporting, not rejecting, innovative approaches from the Global South. 

To achieve the SDGs in the post-pandemic era, Lin and Wang argue governments need to know what they own (asset) and owe (liability) to distinguish patient capital from footloose investors and to separate long-term (structural) and short-term (liquidity) issues. A concerted effort to reinvigorate investment in both hard and soft infrastructure, expand access to vaccinations, improve digital connectivity and invest in green infrastructure is essential to bolster growth along a sustainable, resilient and inclusive path for achieving the SDGs by 2030 and beyond. 

Read the Report