Evaluating Fiscal Supports on the Public-Private Partnerships: A Hidden Risk for Contract Survival

Original study by Manabu Nose

While public–private partnerships (PPPs) have the potential to bridge infrastructure gaps in developing countries, frequent contract renegotiations and terminations (contract distress) pose significant challenges.  Frequent contract distress imposes fiscal burdens on governments and may deter future private investments.

In developing countries, the proportion of PPPs backed by government guarantees has increased as governments seek to attract private finance.  The author investigates whether government fiscal risk-taking—through guarantees or subsidies—along with the strength of underlying fiscal institutions can explain the high incidence of contract distress in developing countries.