Combating fiscal constraints for PPP development

Abstract

Purpose – Public-private partnership (PPP) growth is often related to infrastructure development needs and public debt increase. Despite huge infrastructure (re)construction needs, the number of PPP projects in Croatia has been rather small so far. The purpose of this paper is to analyse the prospects for PPP projects development in Croatia in the near future. It is examined whether the stance of local authorities towards implementing PPP projects depends more on the necessity of developing infrastructure needs of local citizens or on the available funds for capital investments in local budgets, which are, after covering all operational expenditures, scarce. Design/methodology/approach – The Municipal Assemblies in European Local Governance (MAELG) survey data for Croatia are combined with available secondary data on local budgets’ revenues and expenditures in the period from 2008 to 2010 for the surveyed local government units. The differences between the answers of local representatives were tested for statistical significance by Pearson χ2 test, while ANOVA is used for testing statistical significance of budgetary data comparison. Some descriptive statistics’ results are also used. Apart from the quantitative data, qualitative research on PPPs, especially for fiscally constraint governments is used throughout the paper. Findings – The main findings of the paper are that most Croatian local units are severely fiscally constraint to implement any capital projects. Their public revenues are often reserved for covering operational expenditures only. Since local representatives are mostly affirmative towards private sector involvement in providing public services, there is a room for PPP projects in Croatia. Due to the fact that every PPP contract requires active participation of the public partner, two possible solutions are proposed: pooled financing with a possible option of project’ bonds issuance to institutional investors and engaging publicly owned assets into infrastructure projects’ development. Originality/value – The value of this paper is that it showed that there is little room for financing infrastructure development in Croatia if budgetary rules are followed straightforward. The paper aims to show fiscally constraint local governments a possible way for financing capital projects and rendering public services to their citizens. These solutions may also be applied in other indebted countries, especially if they own a significant portion of public assets.