Developed world faces infra debt constraints, says Fitch

Identifying secure revenue streams for infrastructure projects in the developed world is one of the biggest challenges in securing project debt, ratings agency Fitch has said.

The availability of the debt is less of an issue, it said in a new note, but investors are being constrained by the difficulty of showing the sources of revenue to repay project debt.

While the origins of such turnover will often come from the end user or taxpayers, Fitch said policymakers are reluctant to undertake potentially unpopular decisions.

“Increasing either user fees or taxes can be politically difficult, especially in developed economies where the economic priority is often the restoration or adaptation of existing core infrastructure, rather than building new assets,” the note stated.

Fitch pointed to funding for road maintenance and renewal in the US as an example. The Department of Transportation estimated in January funding needs for highways and bridges at about $836 billion and Fitch has suggested interstate tolling to meet the funding gap. However, it admits this would be politically difficult due to the public potentially viewing it as ‘double taxation’.

“Political challenges in securing revenue streams, and policymakers’ preference for traditional, publicly funded procurement, could result in too much investment capital chasing too few appropriate infrastructure projects,” the agency warned. “If structurally or economically weak projects attract private debt financing which they struggle to service, this would damage the development of private funding in the longer term.”

The US has the largest infrastructure funding gap in the world, according to a recent report by the G20-backed Global Infrastructure Hub. While the report estimates that the US is set to spend $8.5 trillion on infrastructure between 2016 and 2040 based on current trends, it will need to spend closer to $12.4 trillion if it is to meet its investment needs.