akistan is at a critical juncture of its economic development path. The country faces infrastructure gaps in transport, energy, water, sanitation and connectivity. The annual infrastructure spending is below a modern economy’s needs. To overcome the infrastructure gap and promote economic growth it has to increase its infrastructure spending from nearly 2 percent of GDP to 10 percent.

Public funds alone cannot fill this gap. Government budgets are still constrained by the public expenditure pressure, debt servicing and demands of security and social sectors. This harsh reality has fueled the debate on development of domestic financial markets and establishment of an institutional framework to help infrastructure financing landscape in Pakistan.

At the forefront of this debate is the idea of the National Infrastructure Financial Institute, an institutional framework that aims to aggregate funds, share risks and encourage the private sector to invest in infrastructure projects using complex financial instruments. Pakistan’s experience of public-private partnerships (PPPs) has underscored both the potential and challenges of tapping private sector funds using robust legal, regulatory and financial institutions.

The challenge

The infrastructure deficit in Pakistan is structural and multi-sectoral. It includes incapacitating power shortages, choked roads and the absence of sufficient water supply and housing in urban areas. The magnitude of the requirements is staggering. Given scarce public resources, successive administrations have had to look for alternative sources of funding, such as external borrowing, multilateral development loans and partnerships with the private sector. However, PPPs face challenges of meager project pipelines, inadequate risk sharing frameworks and a lack of access to long-term funding in local currency.

The initial mandate of the Infrastructure Project Development Facility set up in 2006 was to support government entities in the development, structuring and tendering of PPP projects. The IPDF offered transaction advisory services, capacity building and help with overcoming the initial viability gaps. Later, the IPDF was renamed under the Public-Private Partnership Authority Act, 2017. The P3A is currently the institutional mechanism meant to facilitate PPP transactions involving the federal government.

Progress and Problems

Most of the PPP projects in Pakistan have been in transport and energy sectors. Water, education, health and defence sectors have seen very low PPP contributions. Independent analysts have pointed out the following challenges:

• Lack of bankable project pipelines:

Most of the proposed PPP projects are not adequately developed to attract investors. The feasibility studies and risk management aspects often fail to meet international standards.

• Risk exposure:

PPP projects, if not managed properly, may create contingent liabilities for the government. A PPP Risk Monitoring System to monitor and disclose financial risk related to PPP projects was launched in 2026. The initaitve, taken in part due to IMF prompting, requires biannual reporting on PPP liabilities for the federation and provinces. This has improved transparency in most PPP projects.

• Lack of access to long-term finance:

The nature of investment in infrastructure projects requires finance periods of 15 to 30 years. However, Pakistan’s financial system is dominated by short term deposits and lack of willingness to hold long term assets. Thus, most PPP projects have to rely on government guarantees and foreign borrowing.

• Fragmentation of regulations and institutions: The lack of a national PPP framework and risk sharing mechanism between federal and provincial governments has resulted in ambiguity that discourages investment.

To address these challenges, the Ministry of Finance has issued guidelines for Fiscal Commitments and Contingent Liabilities in PPP projects. The goal is to ensure that public finances are protected throughout the PPP project cycle.

International partners, such as the World Bank’s PPIAF, have also worked to enhance the PPP enabling environment through capacity building, development of fiscal risk frameworks and assisting in the identification of bankable projects.

Infrastructure finance institutions

Countries that have been pursuing the scaling of infrastructure investments have come up with institutions specifically for infrastructure development. These are often referred to as infrastructure development financial institutions (IDFIs), national infrastructure banks (NIBs) or national infrastructure financial institutes (NIFIs). A NIFI will have the following functions:

• Origination and structuring of infrastructure projects: The NIFI may act as an intermediary between the public and private sectors, with project feasibility skills, risk structuring and contractual structuring.

• Mobilising long-term finance: The NIFI can engage in mobilising long-term finances through the issuance of bonds, aggregating institutional capital (such as pension funds, insurance companies and sovereign funds), and collaborating with multilaterals to underwrite risk.

• Credit enhancement: A NIFI can add credit and viability gap funding to make projects attractive without the need for excessive government guarantees.

• Deepening domestic capital markets: A NIFI can engage in deepening domestic capital market through the development of investable infrastructure asset classes and the promotion of fixed-income instruments with long-term maturities.

Such an institution could transform the way Pakistan finances its infrastructure:

Risk mitigation and credit enhancement: The institute may leverage its partial credit guarantees or early risk absorption to make it more attractive for the private sector.

Local currency financing: With a focus on mobilising rupee-denominated long-term funds, the institute will help the infrastructure sector become less vulnerable to currency mismatch risks.

Project standardisation: The institute could help risk management standards and to standardise project contracts, thus making transactions less costly and enhancing investor confidence.

Financial market deepening: The institute could help establish secondary markets for long-term securities; develop infrastructure bond indices; and encourage pension and insurance fund investments.

It is in this context that there is a perception that without a specific financial institution with a clear commercial and developmental mandate, Pakistan will continue to suffer from structural constraints in its transition from PPP policy statements to project implementation.

Looking forward

The federal government seems determined to address the issue. Budgetary policies are being considered to encourage private sector investment in infrastructure financing. Task forces and expert groups are being formed to provide recommendations on changes that can trigger greater private sector participation.

However, the establishment of a NIFI is dependent on the political will and consensus among stakeholders. It will require negotiating institutional boundaries between P3A, the Ministry of Finance and SBP and their provincial counterparts.

Pakistan must also improve its project preparation capacity; legal and regulatory systems; and governance transparency to attract investors.

Pakistan is experiencing a shift in the state of infrastructure finance informed by best practices in the global arena. Even though PPPs have been promising, their expansion depends on the emergence of new financial markets, risk-sharing strategies and institutions.

The writer, an independent consultant on sustainable public private partnership projects, holds a PhD degree in the subject. He can be reached via [email protected]