DPM Lawrence Wong at the High-Level Dialogue on Promoting Sustainable Infrastructure Development 2023
Remarks by Deputy Prime Minister and Minister for Finance Lawrence Wong at the Rapid-Fire Round at the High-Level Dialogue on Promoting Sustainable Infrastructure Development on 24 Aug 2023 in Jakarta. DPM Wong was in Jakarta to attend the 10th ASEAN Finance Ministers’ and Central Bank Governors’ Meeting (AFMGM) and other related meetings.
Question: List three items that are urgent in producing more sustainable infrastructure projects and allowing more financing to flow to infrastructure projects in all ASEAN countries, so that the gap between financing needs and investment in the infrastructure sector can be significantly reduced.
First, many thanks to Ibu Sri Mulyani and the team from MOF for having us here in Jakarta for the ASEAN Finance Ministers and Central Bank Governors Meeting, and also for this dialogue. My three items are as follows.
Number one, we need to identify more projects, and identifying more projects is not just about saying these are my needs, but also understanding who pays for the projects, because projects are not free, right? It is not going to be free of charge, somebody must pay, and usually there are only two parties that pays – user pays, or Government pays. And when the Government pays, it does not mean people do not pay because Government money also comes from taxpayers. So, in fact, it is either the user of the infrastructure that pays or taxpayers that pay.
And if we can identify projects, design the payments for these projects, then we have a healthier pipeline of infrastructure projects. These can be both within ASEAN countries and also across the region, because some projects can be cross country projects, like an ASEAN power grid or a high-speed rail across two countries. These can be between countries, but you still have to come up and identify who pays for the projects.
Second, we should think about how to reduce the risk. Because even after identifying who pays, the bankers may not want to finance the project, or the investors may not want to invest in the projects. And that is usually because there is a gap in terms of the returns. The banks want a certain interest rate, the investors want a certain hurdle rate, but the project does not meet that basic hurdle rate and therefore, there is a financing gap. So the second imperative is to reduce the risk of the project to make it bankable. There are different ways in which Governments can reduce the risk premium, for example, by having greater contractual or regulatory certainty, or even providing some basic guarantees in order to reduce the risk.
The third and final wish list from me is to look at financing and how we can have more innovative financing. And that will include looking at blended financing, for example combining concessionary financing that may be available from multilateral development banks with private banks so that the interest rate that is required from the financer will be lower, and make the projects more bankable. I think if we can unlock more of these blended financing solutions, we can make many more infrastructure in ASEAN bankable as well.
First, many thanks to Ibu Sri Mulyani and the team from MOF for having us here in Jakarta for the ASEAN Finance Ministers and Central Bank Governors Meeting, and also for this dialogue. My three items are as follows.
Number one, we need to identify more projects, and identifying more projects is not just about saying these are my needs, but also understanding who pays for the projects, because projects are not free, right? It is not going to be free of charge, somebody must pay, and usually there are only two parties that pays – user pays, or Government pays. And when the Government pays, it does not mean people do not pay because Government money also comes from taxpayers. So, in fact, it is either the user of the infrastructure that pays or taxpayers that pay.
And if we can identify projects, design the payments for these projects, then we have a healthier pipeline of infrastructure projects. These can be both within ASEAN countries and also across the region, because some projects can be cross country projects, like an ASEAN power grid or a high-speed rail across two countries. These can be between countries, but you still have to come up and identify who pays for the projects.
Second, we should think about how to reduce the risk. Because even after identifying who pays, the bankers may not want to finance the project, or the investors may not want to invest in the projects. And that is usually because there is a gap in terms of the returns. The banks want a certain interest rate, the investors want a certain hurdle rate, but the project does not meet that basic hurdle rate and therefore, there is a financing gap. So the second imperative is to reduce the risk of the project to make it bankable. There are different ways in which Governments can reduce the risk premium, for example, by having greater contractual or regulatory certainty, or even providing some basic guarantees in order to reduce the risk.
The third and final wish list from me is to look at financing and how we can have more innovative financing. And that will include looking at blended financing, for example combining concessionary financing that may be available from multilateral development banks with private banks so that the interest rate that is required from the financer will be lower, and make the projects more bankable. I think if we can unlock more of these blended financing solutions, we can make many more infrastructure in ASEAN bankable as well.
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