Project financing

Development that we see today may look nothing to us but in reality it has been made possible by multiple ideas and hardwork carried out by different researchers and scholars. Without even realising, we are looking at the wonders of “project finance”. Some projects might be completed through traditional financing structure but the latest development is a result of project financing. In project financing, risk and financing is negotiated among all the stakeholders. Project financing is becoming popular in developing economies although not as much as in developed countries. It is suitable for large projects especially in developing and emerging countries like Pakistan. Infrastructure projects were earlier financed mostly by the government itself. But that has started to change now, mainly to decrease budget deficit and foreign debt. The international institutions like World Bank and private institutions are playing a vital role in the development of infrastructure. In developed countries, this model is extended to public-private partnerships. For successful implementation of projects, the future challenge is to find a balance between public-private partnerships.
The State Bank of Pakistan has taken initiatives to implement project financing which includes infrastructure task force and capacity building. The adverse economic environment in Pakistan and problems in global debt markets had an adverse effect on the number of infrastructure projects reaching financial close, particularly since mid-2008. Budgetary constraints might pose a non-trivial risk to the government’s proposed infrastructure investment plans. Furthermore, non-banking finance, insurance and pension funds sectors remain underdeveloped, posing significant obstacles to the project finance sector.
However, the government does remain publicly committed to infrastructure finance and is continuing to pursue enabling reforms. Projects involving private participation in power and transport sectors particularly have seen some activity in recent years, indicating that there is an appetite among investors for infrastructure projects. Recent improvements in macroeconomic stability after receiving the IMF package, combined with relative resolve in the rate of economic growth in 2007-08, should enable cautious optimism going forward.