The shortage of capital funds in small developing countries dictates that infrastructure development projects such as the construction of new roads or the reconstruction of paved roads must be financed externally by multilateral or bilateral agencies and foreign governments. Since most public sector projects do not generate enough revenue to service foreign currency loans, small developing countries such as those of the Caribbean region are now facing huge debt servicing problems. The challenge for small developing countries is to decentralize government financing in order to ease the burden on their finances and encourage better risk sharing. Government must devise and implement programmes that will allow the private sector to play a more active role in the provision of social infrastructure projects. Furthermore, a greater private sector involvement will have the parallel effect of increasing the flow of capital from the industrialized countries to the small developing countries without building up an unsustainable level of debt. This paper proposes to discuss an alternative financing structure, namely the Build-operate-transfer (BOT) mechanism for the provision of transportation infrastructure projects in small developing countries. The BOT concept entails a private entity, usually foreign, providing the finance, design, construction, operation and maintenance of a privatized infrastructure project for a fixed period at the end of which the project is transferred to the host government. BOT can be used to finance urgently needed public sector infrastructure projects such as toll roads without any guarantee of loans and with all technical and financial risks borne by the private promoter. (A)
Abstract