The PPP liability is not unpriced by accident. That is the part that took me a while to sit with.
It is not that the number is hard to produce. A minimum revenue guarantee is priceable. A foreign-exchange backstop is priceable. A termination clause is priceable. PFRAM — the PPP Fiscal Risk Assessment Model, developed jointly by the IMF and the World Bank — exists so that a finance ministry can put a figure on exactly those obligations, and I helped build it. Before that I sat inside Chile’s budget office and then ran the PPP unit at its Ministry of Finance.
And in half of the IMF’s fiscal transparency evaluations conducted to date, PPP disclosure is rated “Not Met” — the lowest rating the Code awards.
The standard explanation for that gap is capacity: ministries lack the skills, the data, the staff. I no longer believe it, and this newsletter’s first edition is about what I think the better explanation is.
The incentive, stated plainly
A fiscal rule binds on something measured — debt, the deficit, a ceiling expressed as a share of GDP. Whatever the measure captures is constrained. Whatever escapes it is not.
A public-private partnership is, among other things, a contract form whose obligations can be structured to fall outside the measure. Under those conditions a government can buy visible infrastructure now and book the cost later, invisibly, while complying with the rule in full.
Which means the demand for PPPs is, in part, demand for a recognition treatment rather than for a procurement technology. And if that is true, then the incentive not to price the resulting liabilities is not an accident or an oversight. It is structural. The silence is useful.
This is not a heterodox accusation
It is the official sector’s own view, and it has been on the record for two decades.
The IMF warned in 2004 that “the driving force behind PPPs may be… the ability to bypass expenditure controls, and to move public investment off budget and debt off the government balance sheet, by exploiting loopholes in current fiscal accounting and reporting conventions.”
Its own 2021 guidance concedes that “in many cases PPPs are regarded as a way to spend more in infrastructure circumventing budgetary controls and legislative oversight.”
The European Court of Auditors states that off-balance-sheet treatment under ESA 2010 “incentivises” the use of PPPs for compliance with the Maastricht criteria — and found on audit that the statistical treatment of a project is “an important consideration” in choosing the procurement route.
Three institutions with no interest in embarrassing themselves, saying the same thing.
And the record moves when the boundary moves
If the mechanism is real, behaviour should respond to where the line is drawn. It does.
The United Kingdom abolished its flagship Private Finance Initiative once accrual accounting and its own watchdogs made the incentive visible. Portugal’s off-book concessions were forced onto the balance sheet at the worst possible moment. Italy created an off-budget agency expressly to form PPPs while complying with the Stability and Growth Pact.
And the segment of the European PPP market most sensitive to statistical treatment — government-pay contracts, the ones where the state, not the user, carries the payment — fell from more than 80% of deals to a trough of 30% across the window in which the statistical rules tightened. That fall survives excluding the United Kingdom, whose own exit is the first case on the list.
What I could not show
I ran the obvious test: PPP investment against fiscal-rule adoption, across 72 emerging economies, 2,324 observations. Eight specifications. All positive, none significant, maximum t-statistic 1.09. An event study on 43 adopters returns a within-country median change of zero.
It is a null, and I am reporting it as one.
I am reporting it because the rule for how to handle it was written down before the data were assembled — preview-cut first; if null, the paper survives unchanged and the null gets one honest paragraph. That commitment sits in the repository with a timestamp. The reasons the test is weak are knowable in advance: a de jure rule dummy is not bindingness, and the one clean quasi-experiment in the literature — on French municipalities — also rejects the simple debt-hiding channel, while confirming that fiscally constrained governments choose PPPs more.
The evidence for the mechanism is not a regression coefficient. It is the official sector’s own words, the documented responses to boundary moves, and a worked contract showing the boundary is worth about half a point of measured debt per hospital.
The uncomfortable part
It is tempting to model the finance ministry as the dupe of enthusiastic line ministries. The record — and my own experience inside two of these institutions — supports a less comfortable model.
The finance ministry is frequently the user.
When a rule binds the government as a whole, it binds the ministry that has to deliver the government’s programme within it. The recognition boundary then becomes that ministry’s own margin of adjustment.
This is why technical assistance aimed at building ministry capacity to assess PPP fiscal risk so often produces capacity that is never used. The constraint was never analytical. A ministry that declines to run the valuation is not failing to understand the liability. It is declining to create a number that would then have to be explained.
I have seen the version of this that is even harder to argue with: the number exists, it is maintained, and the decision is simply not to release it.
Three counterweights, so the argument stays honest
PPPs have real efficiency rationales, and some programmes are dominated by them. Observed use is never all circumvention; the two motives coexist inside single programmes and single contracts.
Constrained governments also have genuinely larger unmet infrastructure needs. The correlation between fiscal stress and PPP enthusiasm would exist in a world of pure efficiency motives — which is precisely why the cross-section cannot settle it.
And the incentive is not unique to PPPs. It migrates: off-budget funds, then public enterprises, then partnerships, then whatever is next. Each channel gets closed and the pressure relocates. That is a fact about rules, not about contracts.
What actually removes the incentive
Not better valuation. Better valuation fights a standing political incentive not to be run, and loses.
What removes it is making the silence useless:
Recognition parity between procurement forms, so the choice of contract stops changing the measured number.
Disclosure of the full commitment stock — not the annual flow, which is where most disclosure regimes stop and where nothing uncomfortable ever appears.
Fiscal anchors written on a perimeter no contract form escapes.
Because a rule that prices only what it can see will keep purchasing what it cannot. That sentence is the whole argument, it is why I stopped believing the capacity story, and it is what this newsletter is named after.
The full paper — with the mechanism developed properly, the country record documented, the panel and its null in full, and the reform ranking — is at The Useful Silence.
Disclosure: I spent a career on both sides of the incentive described here — inside Chile’s budget office and later as head of the PPP unit at its Ministry of Finance; then as a co-developer of PFRAM and as the World Bank’s lead on PPP fiscal risk assessment. I also founded Austral, which sells such tools. Readers should weigh that interest. Every claim above rests on public documents quoted verbatim, or on a reproducible exercise whose null result is reported as a null.
The Price of a PPP is published monthly, on the third Thursday — on what a partnership commits a government to, firm and contingent, and how ministries price, cap, count and disclose it.