"Support mechanisms improve funding terms and conditions and can reduce credit risk," says Maria Matesanz, a Moody's Senior Vice President and co-author of the report. "In doing so, these programs lower procurement costs for infrastructure assets," continues Ms. Matesanz.
"That said, some funding support mechanisms have unintended negative consequences and risks," adds Andrew Davison, a Moody's Senior Vice President and co-author of the report. "These include market distortions, crowding out private capital and introducing legal, documentation and counterparty risks," says Mr. Davison.
Moody's notes that government-supported funding mechanisms abound, but have different motivations. Funding support mechanisms reflect public sector policy priorities, country-related factors, and the relative maturity and liquidity of financial markets serving those countries. In recent years, governments in Europe and Asia have embarked on new infrastructure funding support programs to develop the project bond market. On the other hand, the US government is curtailing support for programs such as the Highway Trust Fund, but is expanding support for other programs such as the Transportation Infrastructure Finance and Innovation Act and the newly passed Water Infrastructure Finance and Innovation Act.
The support mechanisms discussed in the report include direct loans to fund infrastructure projects and developments, debt guarantees and other unfunded credit enhancements, and tax incentives that directly benefit infrastructure debt investors.
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