CANBERRA — Despite the official start date for the Australian Infrastructure Financing Facility for the Pacific being July 1 of this year, it has been revealed that it is still a work in progress with no clear time frame for when financing will be made available under the scheme.
AIFFP was announced by Australian Prime Minister Scott Morrison in November as part of his step up for the Pacific — consisting of a $1.5 billion Australian dollar ($1.02 billion) loan facility and AU$500 million grants component. It aims to support investment in infrastructure development through loans and grants in the Pacific and Timor-Leste. AIFFP is planning to invest in infrastructure for energy, telecommunications, transport, water, and other priority infrastructure in the region.
“The Australian Infrastructure Financing Facility for the Pacific will not be lending to governments which are assessed to have high levels of debt.”— Marise Payne, foreign minister
On Oct. 24 in Canberra, Department of Foreign Affairs and Trade staff and Foreign Minister Marise Payne fronted senators to answer questions as part of the scrutiny of government. And they confirmed that while AIFFP implementers are assessing a “substantial pipeline” of projects to fund, no projects have been approved for funding.
AIFFP under the microscope
Among the senators asking the tough questions in parliament were former minister for international development and the Pacific, Senator Concetta Fierravanti-Wells, who has been a vocal critic of the infrastructure financing in the Pacific — and Australia’s plans to join AIFFP.
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For Fierravanti-Wells, creating a debt burden for Pacific countries is the concern with too many countries throwing money at them — which needs to be repaid.
“With respect I don’t agree with Senator Fierravanti-Wells,” Payne said in response to questions, saying that debt vulnerability issues were “first and foremost” in the delivery of AIFFP.
“Our decision to establish the Australian Infrastructure Financing Facility for the Pacific is one which has generated a lot of interest. We’ve been consulting comprehensively across the region with the private sector, with Pacific business councils on potential projects.
“But what I can say — and what I do want to assure — is that we are very conscious of debt vulnerability issues … and the Australian Infrastructure Financing Facility for the Pacific will not be lending to governments which are assessed to have high levels of debt,” Payne said.
It was not enough of an assurance for Fierravanti-Wells, who questioned the number of countries that could be supported under that philosophy.
“With debt to GDP ratios of up to 90% for some countries in the Pacific, which countries do you think are left that we are going to be able to lend to while at the same time satisfying the requirements that are part of our normal accounting procedures in terms of the risk level?” Fierravanti-Wells asked.
“A lot of countries cannot sustain further debt and why are we engaging in lending more money when we know very well what priorities are, including the priorities of the Pacific Island Forum?”
Justifying the need for AIFFP
DFAT secretary Frances Adamson said there was “very strong demand” from Pacific partners for the kind of assistance that could be offered through AIFFP, with the rationale behind it to invest in the production capacity of economies.
“There are parts of the Pacific where a bridge between islands enable people on the bridged island … to gain employment [and] to be able to pay taxes,” she said.
For Payne, the facility provided an opportunity for Australia to support the increased need for infrastructure that would support this economic development that has been identified through various models and research.
“We have very significant infrastructure demands across our region,” Payne said. “We know that the Asian Development Bank estimates those to be in the vicinity of $48 billion in terms of the cost between now and 2030 to address.”
And when questioned on the evidence base to justify developing AIFFP over-investing in grants or other development assistance, assistant secretary of the DFAT global development branch Sarah Goulding said there was a body of evidence on the effectiveness of this sort of financing — but it depended on the nature of the problem you are trying to solve.
What is the status of AIFFP?
Goulding explained that within DFAT, AIFFP is considered an experimental approach to financing — along with other innovative financing approaches that it would traditionally partner with the World Bank or other international organizations to deliver. But this meant that DFAT was still working on gathering the expertise that was needed to deliver a productive and transparent system of financing for the Pacific.
“We have … recruited investment specialists externally who have significant infrastructure financing expertise, we are drawing on the lending experience of Export Finance Australia … and they are also important initiatives to ensure we run this facility appropriately,” Payne said.
Swati Dave, managing director and CEO of Export Finance Australia, said that its contribution to the delivery and management of AIFFP, and its expanded powers for infrastructure financing in the Indo-Pacific region, had seen staff visiting Papua New Guinea and Indonesia and engaging with a range of private sector stakeholders to “build the pipeline” for the new regional activities. But she acknowledged nothing had yet been delivered with no time frame set, and outcomes “too early to discuss.”
With AIFFP considered an important component of Morrison’s “step up” for the Pacific, the attention will continue to grow for the program — along with the pressure to show results.
“I do have quite a lot of questions about the AIFFP,” Penny Wong, shadow minister for foreign affairs, told DFAT.
Update, November 6, 2019: This article was updated to incorporate information on the expanded mandate of Export Finance Australia in addition to the AIFFP.