Friday, March 31, 2017

Financing Development

This writing is a proposal for a financing solution that will increase private and/or public finance for development in Myanmar that uses the IDA Private Sector Window (PSW). Myanmar is listed as a fragile state which has a harmonized average CPIA (Country Policy and Institutional Assessment) country rating of 3.10.

·         What is the problem or issue that you are trying to solve?
My experience in Myanmar is that the country experiences power shortage. Even Yangon as a major city would have frequent power cutoffs especially during summer dry season when the hydropower dams are with low water level in their reservoir. Access to electricity remains a top priority for productivity and competitiveness in the Myanmar economy. One of the main challenges in attracting investments is the financial viability of the power sector, which critically depends on tariff policies both for gas supply to the power sector and for electricity distribution. Thus, it is important for the government and power industry to explore various financing resources that suit different appetites of risks, returns and terms in the infrastructure project such as power plants.

·      What are the reasons that the government, official aid provider or private sector would want to participate?
The government and the official aid provider would be the lead stakeholders for promoting “financing for development” where the act of providing funds for development purposes and the whole range of management activities would guide the allocation and use of those funds which would catalyze private funding interest if managed efficiently. IDA was replenished at a record level of $75 billion for FY18 and it would be good to have available fund to seed the growing interest and demand for infrastructure projects such as power plant in Myanmar.

Private sector would want to participate in the infrastructure building in Myanmar so that they would ride the development waves in fulfilling their demand for proper risk and returns objectives be it long term or short term. When the market is reinforced by both Public and Private Financing and investment more and more market participant will be drawn to join the market and the projects and investment market will be commercially sustainable. Co-investment platforms that are structured at the national and multilateral levels will pool and help catalyze private capital, reducing individual investor costs for project preparation and execution. The credit enhancement and shared risks would also be draw the investors to participate in public loans and equity portfolios, or infrastructure funds and platforms.

·    What are the main obstacles currently standing in the way of unlocking financial opportunities? How would your solution overcome them? Consider the country context, if your proposal involves a specific country.

There are large amount of investible resources but not channeled to the fragile states. The main obstacles would be due to political risk, macroeconomic risks, local currency risk, commercial risk, transparency risk, market risk, project risk and etc.
Institutional investors need to step in to increase the capital needed for infrastructure project to kick-start financing pooling. The existing and emerging pools of capital such as sovereign wealth funds, insurance company resources and pension funds could be important financing sources for a fragile state such as Myanmar, particularly for large infrastructure and energy investments. In order to tap these sources, Myanmar government need to provide well prepared, bankable projects with suitable risk/return profiles.
Improvement on certainty with infrequent policy changes and reforms are needed to sustain private investments. This is especially pertinent to the long lived infrastructure sector. The lack of capacity among institutional investors to evaluate and monitor individual project risk in Myanmar need to be addressed with comprehensive official research information improvement as well.

Through policy advice, technical assistance and capacity building, MDBs and the IMF can support the Myanmar government efforts to increase available resources and spend them effectively. Through MDB policy support loans and IMF-supported programs, the institutions would be able to help Myanmar meet budgetary and balance of payments needs, supporting macroeconomic stability and growth. This includes domestic public resource mobilization, deepening of local financial and capital markets, and creating a conducive climate for private investment, both local and international.
For example, in order to unlock the hinterland potential of Myanmar, the Myanmar government should also seek help from sovereign wealth funds and pension funds, as newer sources of finance. This is because these public funds are with private sector return objectives and have long-term investment horizons that would be crucial to sustainable and long term stable development of Myanmar. With the available fund, the citizens living in the hinterland of Myanmar would be able to enjoy the development of power infrastructure as well as the economic improvement.

Case Study:

Kyaukphyu Special Economic Zone (abbreviated Kyaukphyu SEZ) is a 1,600 hectares (4,000 acres) Burmese special economic zone being developed on Kyaukphyu, Ramree Island, Rakhine State.  Kyaukphyu SEZ was first announced in September 2013. The project initially began as a joint venture between the Chinese and Burmese governments, but has since transitioned to private developers. The Myanmar press reported on the signing of an agreement between the consortium 26 May 2014 in Naypyitaw, led by CPG Consultants and PM Link, and the Kyauk Phyu Special Economic Zone Management Committee for the development of the master plan and management of the tender process for the Kyauk Phyu Economic Zone (SEZ). (Visit for more information)

The Myanmar government could have seek IDA assistance & grant, conditional loans & low-interest loans, and catalyze long term funding from foreign institutions, mobilize local resources as well as foreign loans, mezzanine loans, bonds, and equities to ensure a successful financing solution for the mega development which include a deep sea port, industrial zone and residential zone. The power industry needed to supply to the Kyauk Phyu SEZ especially the industrial zone would be another critical factor to ensure the success of the SEZ.  

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