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Opinion

When ‘invisible’ debt turns ugly

The collapse of Carillion has raised perennial questions about PPP.

Carillion-R-600

Euromoney wrote last year about the rise of invisible debt. Governments have been piling up contingent liabilities that they can keep off-balance sheet in order to hit budget targets, buoy credit ratings or simply hide the measure of overall indebtedness from the public eye. A popular example of this is the funding of infrastructure through public private partnerships.

The UK’s public-sector debt is estimated to be about £1.83 trillion. This represents one of the highest debt-to-GDP ratios among advanced economies. 

At 1.7% of GDP, the UK’s use of PPPs, which involve off-balance sheet debt and other contingent liabilities, is the third highest in Europe behind Portugal and Hungary, according to a recent report from the National Audit Office (NAO). 

The NAO calculates that the cost to the state of those contingent liabilities from existing Private Finance Initiative (PFI) commitments (part of the broader PPP procurement programme) with a capital value of £60 billion will be about £199 billion until 2040.

These are striking numbers. PPPs can be a useful way of directing capital to projects that require heavy investment long before there is any pay off. They enable risk to be allocated to public and private investors according to appetite, which can result in higher quality assets and increased operational efficiency.


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