Financing for Development: Billions to Trillions to Action Final Project Andrés Dobles Rojas

07 December 2015

Final Project explanation

Dear Reviewer,

I was born and raised in Costa Rica. My country has not embraced infrastructure

development in the last 6 years. The fiscal situation is dire, limiting the allocation of

resources towards infrastructure.

For this project, I have decided that my target audience is the current President of the

country and the Ministers who have influence on key infrastructure decisions. I am

pretending to be the leader of an organization formed by the private sector who is

concerned that the government is not providing solutions to bridge our current

infrastructure gap.

Hopefully, I will be able to convey my message and raise awareness with key policymakers

in this crucial matter.

Sincerely yours,

Andrés Dobles

Agenda

Fiscal situation-Costa Rica

Infrastructure gap

Development agenda-Proposal

Next steps

Fiscal situation

Costa Rica´s growth prospects have fallen below potential GDP

The country´s finances have deteriorated significantly

4,30%

5,90%

8,80% 7,90%

2,70%

-0,9%

4,9% 4,4%

5,1%

3,6% 3,5% 2,4%

3,5% 4,2%

-3,00%

-1,00%

1,00%

3,00%

5,00%

7,00%

9,00%

11,00%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Real GDP growth

-3,42% -2,80%

-1,44%

0,32% -0,29%

-3,60%

-5,41%

-4,28% -4,65%

-5,63% -5,30% -5,90%

-6,60% -6,70%

-8,00%

-7,00%

-6,00%

-5,00%

-4,00%

-3,00%

-2,00%

-1,00%

0,00%

1,00%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Fiscal deficit (% of GDP)Source: World Bank database

Fiscal situation

Key takeaways

Economic growth

Expected real GDP growth is below potential GDP

Fiscal revenues will remain stagnant at 14% of GDP for the

next years

Multinational companies have left the country due to high

costs (electricity, wages, among others)

Exports are growing at slower rates

Fiscal deficit

Challenges

The country is facing the following challenges:

Borrowing costs have increased; mainly due to downgrades and delays in approving tax reforms

FDI inflows have decreased

Government is protecting the currency; leading to lack of competitiveness in exports

Living costs have increased; impacting the tourism sector which represents 6% of GDP

Allocation of budget resources towards infrastructure have decreased in the last years

Key considerations:

• Tax reforms have not been approved

• Economic growth has stagnated

• Public spending has increased dramatically (mainly wages

• Debt as a % of GDP is reaching 50%

Source: Costa Rica Central Bank

Agenda

Fiscal situation-Costa Rica

Infrastructure gap

Development agenda-Proposal

Next steps

Infrastructure gap-Government approved investment plan

The 2011-2035 infrastructure investment plan is estimated to cost US$58 billion

Key takeaways

Source: Ministry of Public Transport, Ministry of Development

77%

8%

5% 5% 4% 1%

Roads Railroads Airports Ports Public transportation Other

64%

36%

National budget resources Other sources

The plan received praises from the private sector and multilateral organizations. Several multilateral organizations committed

funds towards this ambitious plan.

The plan was expected to boost GDP by approximately 1%-2% per annum in the initial deployment years.

Construction companies and private investors from around the world showed interest in the investment plan.

The only critique was that the government did not offer clarity regarding the role of the private sector.

Infrastructure gap-Status Quo

The delay in the infrastructure investment plan has been a mayor setback for the country

Challenges Strategic considerations

► Fiscal deficit has hampered the government´s resource allocation towards infrastructure

► The 2016 national budget will only allocate 5% of the funds towards infrastructure (US$652 million vs US$1 billion expected for this year)

► The new government (2014-2018 period) is facing a Legislative Assembly that is completely fragmented; reducing the possibility of approving urgent tax reforms

► The burocracy and resistance form unions who are against investment channeled form the private sector have reduced interest from key financing sources in the infrastructure investment plan

Infrastructure gap as a % of GDP:

► Meager execution: the country has paid US$ 22 million in interest on infrastructure loans which have not been executed

► Costa Rica has US$3 billion in loans approved since 2011, but only 55% of these funds have been deployed; augmenting the infrastructure gap

► The current government decided to cancel 25% of the strategic infrastructure projects that were approved in 2011

► The World Economic Forum (WEO) ranked Costa Rica #103 out of 140 countries in infrastructure quality

► The private sector is losing interest in the plan

2.5%

Source: WEO Competitiveness Report 2015, El Financiero newspaper

Agenda

Fiscal situation-Costa Rica

Infrastructure gap

Development agenda-Proposal

Next steps

Development Agenda-Guidelines

Embrace the Sustainable Development Goals (SDGs) proposed by multilateral organizations

Source: World Bank, IMF, https://sustainabledevelopment.un.org/?menu=1300

Development Agenda-Proposal

A public-private taskforce can play a pivotal role in the country´s development agenda roadmap

Proposal

Representatives: President of Industry Chamber, President of Construction Chamber

Create taskforce

Secure and deploy funds

Private sector

Public sector

Prioritize infrastructure projects

Project evaluation

Time schedule

Private sector

Multilateral organizations

Representatives: Minister of Public Transport, Minister of Development

Tasks: Evaluate current state of approved projects, Evaluate project pipeline, Identify opportunities for PPPs

Propose a timetable in order to avoid further delays in the infrastructure investment plan

Priorities: Attract private investment-mainly PPPs granting private concessions; bolstering investment

Priority: obtain long-term commitments to reduce the infrastructure investment gap

Development Agenda-Proposal

Design an infrastructure development agenda that adopts the SDGs Financing for Development approach proposed by the World Bank, IMF and multilateral development banks

Supervise project executions (emphasis on fund disbursements in order to avoid paying interest on undrawn funds)

Discuss and analyze project pipeline

Monitor current project completions

Taskforce

Focus efforts on defining the strategic projects the country needs in order to reduce the infrastructure gap of 2.5% of GDP

Quantify project costs in order to establish the total investment needs required for the next 20 years

Identify which projects will require a PPPs structure

Prioritize

infrastructure

projects

Present the revised infrastructure investment plan to key financing sources in order to secure funds

Present timeline to key financing sources in order to establish fund disbursement schedules

Monitor fund deployment and execution in order to avoid delays

Secure and

deploy funds

Key benefits

Source: http://www.worldbank.org/mdgs/post2015.html

Agenda

Fiscal situation-Costa Rica

Infrastructure gap

Development agenda-Proposal

Next steps

Next steps

Fiscal situation-Costa Rica

Infrastructure gap

Development agenda-Proposal

Next steps

1-Formalize taskforce

2-Design a new infrastructure development plan roadmap

3-Identify key infrastructure projects for the next 20 years

4-Promote laws that incentivize private investment in infrastructure projects

5-Assist in the design of Requests for Proposals (RFPs) in open bids regarding infrastructure projects

6-Monitor evolution of the timetable of the infrastructure investment plan