An economic and financial analysis of Public Private Partnerships

Abstract

In response to the rising concerns of a growing debt-to-income ratio, governments have begun to shift or re-define their priorities. It is becoming increasingly difficult for governments to continue to use traditional financing methods, such as deficit financing or tax increases, to pay for public services. Consequently, the challenge facing governments is to find new methods that would allow for the completion of these projects as efficiently as possible, without jeopardizing their credit ratings any further. This challenge has lead governments to the use of Public Private Partnerships (PPP's). More often than not, those who are seeking to promote the use of PPP's take the superiority of the private sector over the public sector for granted. A decision to use a PPP because of unsubstantiated claims could have disastrous consequences for governing bodies and taxpayers alike. Therefore, a complete analysis of the economic and financial effects associated with PPP's must be done to check the uninformed usage of PPP's. In this thesis an effort will be made to gain insight into the economic and financial implications of PPP's. This will be done by first examining the different types of PPP's and the reasons for their increased acceptance. This is followed by an explanation of the relevant economic theory in an effort to understand the economic consequences of increased PPP usage and the budgetary en anglements and the differences in borrowing costs when using a PPP instead of the more conventional financing approaches. Finally, two case studies will be examined to delineate the fundamental differences inherent in every PPP and the resulting after-effects.