Portfolio in South Asia, as a Percentage of GDP, 2020–24

P ubli C-P riv A te PA rtners H i P s in sout H A si A 39

FiGURE 1.11 Estimated Total Fiscal Costs from Early Termination of Public-Private Partnership Portfolio in South Asia, as a Percentage of GDP, 2020–24

Percent 0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

Afghanistan Bangladesh Bhutan India Nepal Pakistan Sri Lanka Low Medium less low High less medium

Source: Herrera Dappe, Melecky, and Turkgulu 2020. Note: The estimated fiscal costs are based on the value at risk at 99 percent over the entire contract period and are expressed as percentage of GDP of a single year. The 99th percentile refers to the confidence level with which the computed maximum loss is not exceeded during the relevant period. PPP = public-private partnership.

at 99 percent) is about $3.8 billion (39 percent of total costs).

Nepal, India, and Pakistan have the highest estimated fiscal costs from early termination of active PPPs as a share of GDP

(figure 1.11). The cumulative fiscal costs estimated for the entire lifetime of the PPP portfolio in Nepal (based on the value at risk at 99 percent) ranges from 0.38 percent to 0.67 percent of annual GDP; in India, from 0.35 percent to 0.67 percent; and in Pakistan, from 0.33 percent to 0.61 percent. Bangladesh, Bhutan, and Sri Lanka follow, with estimated fiscal costs from early termination of active PPPs ranging from 0.14 percent to 0.26 percent, 0.16 percent to 0.22 percent, and 0.06 to 0.12 percent of annual GDP, respectively. These estimates give an idea of the resources that would be needed in case of early termination of the PPP portfolio relative to the size of the economy.

South Asian governments are quite different in terms of their revenue mobilization capacity, which helps determine their ability to absorb the fiscal costs from early termination of PPPs in infrastructure. The government of Bangladesh’s revenues represent only 9.6 percent of GDP, while the government of Pakistan’s revenues represent 15.6 percent of GDP, and the government of India’s revenues represent 20.5 percent of GDP.22 Pakistan faces the most significant

fiscal challenge from early termination of PPPs in South Asia—slightly less than 4 percent of the government’s annual reve-

nues. Even though Bangladesh’s estimated fiscal costs are low relative to the size of its economy, they are high compared to the annual government revenues (figure 1.12), posing a significant fiscal challenge to the country, if only the revenues of a single year are available to absorb the costs of early termination of PPPs.

The probability that an entire PPP portfolio is terminated in a single year is very low. Hence, a more realistic analysis is to compare the estimated fiscal costs over a period of time with an estimate of the government revenues over the same period of time. The estimated fiscal costs from early termination of PPPs as a percentage of government revenues tend to decrease over the 2020–24 period. Figure 1.13 presents the estimated fiscal costs for different periods, all starting at the beginning of 2020, as the ratio of government revenues of that period.23 The estimated fiscal costs decline for most countries because active projects get older and some reach the end of their contract periods.