The use of private capital in supporting the billions of dollars of infrastructure projects in the Middle East should be increased, says Jarmo Kotilaine, chief economist at the Economic Development Board of Bahrain.

Speaking at MEED’s Project & Infrastructure Finance conference in Bahrain, he told delegates that private-public partnership (PPP) models are something that should be considered.

“There is a real opportunity and need to get private capital in financing projects and the PPP model is a paradigm that should be explored,” he said.

Traditionally, infrastructure projects have been financed by a mix of government funding and bank debt. Yet, both these sources could face constraints in the future, making it important to consider alternative funding methods, Kotilaine notes.

Bank debt financing is increasingly being constrained by banking regulations such as Basel III, which could make banks less likely to lend long-term.

Government spending in the region is already very high and there are doubts at how sustainable this expenditure will be, particularly with oil prices predicted to be relatively flat.

“GCC spending to GDP [gross domestic product] is already very high and there are questions whether this makes sense…whether this is the most efficient way of investment in future,” he said.

Kotilaine said other methods of financing projects such as the use of project bonds should be explored further. It is currently an infrequently tapped market within the Middle East.

“The regional bond market is very underdeveloped by global standards…it is not massively significant,” he says.

He notes the main issuances are made by sovereign entities rather than private infrastructure companies.

“It is an important paradox to highlight and one of the defining characteristics of the GCC is that the region has the deepest pools of public and private capital in the world and it has huge infrastructure requirements but at the moment we don’t have a proper bridge between those two spectrums of the market,” he adds.