01.09.2020
The World Bank Group's Economic Report «Overcoming the Crisis» notes that the real growth of Kazakhstan's economy will decrease as a result of a reduction in domestic spending and external demand in 2020 by 3.0% and in 2021 by 2.5%. In addition, there is a slowdown in annual investment growth to 1.0%.
According to Baltabay Syzdykov, the Leading Expert of Economic Research Institute, despite the negative forecasts, some niches can become sources of economic growth. It is possible to invest in infrastructure, he believes. However, in a crisis, it is necessary to calculate the risks.
Investment in infrastructure helps to increase production capacity, while increasing the country's resilience to counteract possible internal and external shocks.
In the report of the World Bank and Global Facility for Disaster Reduction and Recovery «Lifelines: The Resilient Infrastructure Opportunity» indicates that the net benefit from building sustainable infrastructure in countries could be USD 4.2 tln., i.e. USD 4 for every US dollar invested.
One of the most effective instruments for investing in infrastructure is Public-Private Partnership (PPP).
Currently, this instrument has been actively developed in Kazakhstan. Thus, the number of projects over 15 years has increased from several projects in 2005 to 1,034 projects as of July 06, 2020, which are at various stages (planned, implemented) according to the Database of Kazakhstan Public-Private Partnership Center. Of these, 55.5% are implemented in education, 21.0% - in health and social services, 9.8% - in culture and sports, 9.6% - in energy and housing, 2.5% - in transport and infrastructure, etc.
Active use of the PPP mechanism has a positive impact on economic growth. Thus, according to expert calculations, 1 tenge of attracted investments (including PPP investments) in education leads to an increase in GDP by 1.36 tenge, in health and social services – by 1.32 tenge, in culture and sports – by 1.25 tenge, in transport – by 1.18 tenge.
International experience
In Canada, every dollar invested in PPP projects increases Canada's GDP from 1.1 to 4.2 US dollars depending on the industry according to the Canadian Center for Economic Analysis.
In 10 European countries, a positive degree of dependence of GDP growth on the number and volume of financing of PPP projects was determined according to European PPP ExpertiseCentre data.
However, it is worth noting that in the context of the COVID-19 pandemic, significant risks arise for the implementation of PPP projects. For example, according to the forecasts of the National PPP Center of the Russian Federation, the negative consequences of the pandemic and fall in oil prices will negatively affect 340 PPP projects. In particular, there is a possibility of reducing the profit of PPP participants, increasing the cost of projects in comparison with those already specified in the concluded contracts, while neither the amount of agreements, nor the volume and timing of their execution can be changed. To a greater extent the negative impact will affect PPP projects in such areas as social services to population (shortfall from 50 to 100%), health (shortfall from 10 to 90%), culture and recreation (shortfall from 20 to 100%), sporting events (shortfall from 70 to 100%) and transport infrastructure (shortfall from 40 to 60%).
Risks and liabilities are strictly taken into account in PPP projects in EU countries. In addition, the World Bank has developed a corresponding model (PFRAM) together with the IMF that can be used to assess the impact of conditional commitments made by public partners for PPP projects on budget sustainability. A separate platform was created by international development banks (SOURCE), which contains various tools for working with infrastructure projects, including the ability to assess their risks.
Forecast
In whole, in the medium term, we can expect a steady downward trend in revenues from ongoing projects, a negative impact on access to financing for those who have not yet completed financial activities, as well as disruption of construction schedules for projects that are already being implemented.
Furthermore, in addition to ongoing and existing PPP projects, the overall uncertain situation may lead to a so-called "investment pause" in the infrastructure market. In other words, the conclusion of agreements on new projects will slow down, as investors and authorities will expect a more stable state of the economy.
Thus, the COVID-19 pandemic creates significant risks for the implementation of PPP projects, which requires targeted actions to identify vulnerabilities, determine the extent of the impact of projects (if they are not implemented), monitor risks, implement active risk management, and identify voluntary and mandatory recovery measures.
Measures can range from changes to standard contracts, financial restructuring, provision of short- and medium-term liquidity, appropriate instruments to increase credit risk, to the provision of government guarantees for critical infrastructure projects.
In general, an effective PPP mechanism can have a positive impact on the overall economic growth of the country in the conditions of uncertainty.
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