Multilaterals hold the key for infrastructure investments after COVID-19
July 30, 2020
Development banks can attract institutional investors to increase "funding diversity" in Latin America, Moody's says
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Multilateral development banks are expected to play a crucial role in bringing institutional investors to infrastructure projects in Latin America after the COVID-19 pandemic, Moody's said in a report on Wednesday.
As governments face spending constraints and commercial banks become more selective in granting loans in the fallout from COVID-19, institutional investors will likely become more prominent in the project finance market, Moody's said.
Multilateral lenders, for their part, "can catalyze infrastructure investments by institutional investors... where credit challenges, such as political risks, constrain investor appetite, especially during these uncertain times," Moody's added.
From 2000 to 2010, debt financing for infrastructure projects in Latin America and Asia-Pacific, excluding China, tracked at roughly the same pace. Since then, however, Latin America has lagged behind and it could fall further adrift after the COVID-19 pandemic, Moody's said.
Governments and multilaterals will be occupied with funding an economic recovery, putting money toward stimulus plans rather than long-term infrastructure investments, so they will likely rely more on institutional investors to close the financing gap, Moody's said.
The bond market could also get a bump from infrastructure financing after the COVID-19 pandemic as banks lend less and institutional investors look to buy long-term debt, but governments can help by making a "level playing field" for capital markets and bank loans, Moody's said.