Once the level of public funds available for core infrastructure is determined, we can forecast the levels of infrastructure that will be attained. If there is a match between the estimated funding requirements and the estimated funding available, the process is fairly straightforward. In the case where there is a demand-supply mismatch, the forecasting becomes more complicated. The following figure presents this process.
Recognizing that the infrastructure sector may not be able to manage rapid increases in public funding, we first smooth the actual provision of the public funds. Specifically, if the public funds available in the current year dramatically exceed the amount spent in the previous year, a portion of the available funds are held in reserve (in a lockbox). The threshold for this increase is half a percent of GDP. The funds in the lockbox are gradually released over time. The amount released from the lockbox depends on the amount in the lockbox and a fixed coefficient, InfraSpndBoxUnloadFactor, indicating the fraction that can be released in any year. This value is currently hard coded at 0.2. The amount of public funds available in the present year for core infrastructure is, therefore, the sum of the public funds coming out of the budget process for the current year not put in reserve plus the funds released from the lockbox in the current year. This amount is then compared to the public funds required for core infrastructure determined previously.
In the case of an exact match between the public funds available in the present year for core infrastructure exactly matches the public funds required, the amounts of public and private spending on new construction and maintenance/renewal are exactly the amounts required. Similarly, the levels of infrastructure attained exactly match those expected (see again earlier figures on expected levels of infrastructure).
In the case of a budget shortfall, we make three simplifying assumptions. First, we assume that all forms of infrastructure are affected equally; specifically, each receives the same proportionate cut in the amount of public funding received. Second, with the exception of ICT infrastructure (fixed and mobile telephones and broadband), we assume that the amount of private funding is reduced by the same proportion. This is based on our premise, stated earlier, that public funding for infrastructure leverages private spending, so less public funding also means less private spending. We make the exception for ICT because this is a less-tenable assumption for that sector given the degree to which private spending historically has driven ICT development. Specifically, private funding for ICT is not reduced even in the case of a reduction of public funding. Third, we assume that the reductions in funding affect spending on both maintenance and new construction equally. The net result is that there will be less new construction of infrastructure than desired, as well as less maintenance of existing infrastructure. This can lead to an absolute decline in some forms of infrastructure when the new construction is not enough to make up for the amount of infrastructure lost due to inadequate maintenance.
This is slightly altered when targets are set for infrastructure. Here, an algorithm is used that first tries to ensure that the funds are used to provide the levels of construction and maintenance implied by the expected values estimated in the absence of a target. In this way, infrastructures with high targets are not favored over other forms of infrastructure. Any remaining funds are then distributed among all other infrastructure types, with their shares being proportional to the funds required to achieve the expected levels of construction and maintenance implied by the target.
A further effect of a budget shortfall is that when infrastructure stocks do not achieve their expected levels, there is a feedback to our access measures.
When there is a budget surplus, the extra funds go to additional new construction because the maintenance/renewal requirements are already covered. The surplus is spread across the different forms of infrastructure using the following logic. First, r oads and electricity generation are allocated shares of the excess funds determined by their historical shares in total infrastructure spending. Second, the remainder of the excess funds is disbursed among the infrastructures that involve access. They are used to meet the gap to universal (stipulated) access rate with a cap on how much of the gap can be met each year. Private funding is not affected by increases in public funding from “surplus funds.”