Capital Subsidies Implicit in Concessional Finance : How to Make Them More Transparent and Better Targeted
Multilateral Development Banks (MDBs) finance a significant share of developing country water sector investments in Vietnam. Much of this financing is concessional and often on-lent by national governments, at similar concessional terms, to water u...
| Main Authors: | , , |
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| Format: | Other Financial Sector Study |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2012/02/16350069/vietnam-capital-subsidies-implicit-concessional-finance-make-more-transparent-better-targeted http://hdl.handle.net/10986/12977 |
| Summary: | Multilateral Development Banks (MDBs)
finance a significant share of developing country water
sector investments in Vietnam. Much of this financing is
concessional and often on-lent by national governments, at
similar concessional terms, to water utilities. This
concessionality carries an implicit subsidy, i.e., the
difference between MDB financing terms and commercial
financing terms priced more in line with the underlying
credit risks. As such concessional financing is most often
used for capital investment projects, the implicit subsidy
can be considered a capital subsidy. This working paper asks
whether there is an opportunity to increase the value of
concessional financing for water sector investments by
making implicit capital subsidies more explicit and
targeting them to a clearly defined public policy objective.
Specifically, the paper (i) considers the extent to which
implicit subsidies exist in MDB lending for the water
sector; (ii) identifies a possible approach to quantify the
amount of subsidies involved; (iii) outlines an emerging
framework to make subsidies more explicit as a basis for
improved targeting; and (iv) discusses operational
implications. By investigating these issues, the paper
intends to be a first step for governments and donors to
evaluate how best to use the implicit capital subsidies
provided by concessional financing in the water sector. The
paper also suggests areas of future research. |
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